Church & Dwight Co Inc 10-Q for FY2023 Q1
Church & Dwight Co Inc (CHD)
About this 10-Q
Church & Dwight Co Inc filed this 10-Q on April 27, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.43B
- up 10.2% from $1.3B a year earlier
- Net income
- $203.2M
- down 0.6% from net income of $204.4M a year earlier
- Diluted EPS
- $0.82
- down 1.2% from $0.83 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code: (
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 25, 2023, there were
TABLE OF CONTENTS
PART I
Item |
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Page |
1. |
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3 |
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2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
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3. |
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28 |
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4. |
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28 |
PART II
1. |
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30 |
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1A. |
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30 |
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2. |
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30 |
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6. |
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31 |
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2
PART I – FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except per share data)
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
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Net Sales |
$ |
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$ |
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Cost of sales |
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Gross Profit |
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Marketing expenses |
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Selling, general and administrative expenses |
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Income from Operations |
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Equity in earnings of affiliates |
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Other income (expense), net |
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( |
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Interest expense |
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( |
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( |
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Income before Income Taxes |
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Income taxes |
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Net Income |
$ |
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$ |
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Weighted average shares outstanding - Basic |
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Weighted average shares outstanding - Diluted |
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Net income per share - Basic |
$ |
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$ |
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Net income per share - Diluted |
$ |
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$ |
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Cash dividends per share |
$ |
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$ |
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
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Net Income |
$ |
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$ |
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Other comprehensive income, net of tax: |
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Foreign exchange translation adjustments |
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( |
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Defined benefit plan adjustments gain (loss) |
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Income (loss) from derivative agreements |
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( |
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Other comprehensive income (loss) |
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Comprehensive income |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
3
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share and per share data)
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March 31, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, less allowances of $ |
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Inventories |
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Other current assets |
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Total Current Assets |
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Property, Plant and Equipment, Net |
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Equity Investment in Affiliates |
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Trade Names and Other Intangibles, Net |
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Goodwill |
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Other Assets |
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Total Assets |
$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Short-term borrowings |
$ |
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$ |
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Accounts payable and accrued expenses |
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Income taxes payable |
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Total Current Liabilities |
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Long-term Debt |
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Deferred Income Taxes |
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Deferred and Other Long-term Liabilities |
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Business Acquisition Liabilities |
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Total Liabilities |
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Stockholders' Equity |
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Preferred Stock, $ |
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Common Stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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( |
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Common stock in treasury, at cost: |
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( |
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( |
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Total Stockholders' Equity |
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Total Liabilities and Stockholders' Equity |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
4
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In millions)
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
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Cash Flow From Operating Activities |
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Net Income |
$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation expense |
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Amortization expense |
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Deferred income taxes |
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( |
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( |
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Equity in net earnings of affiliates |
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( |
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( |
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Distributions from unconsolidated affiliates |
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Non-cash compensation expense |
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Other |
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( |
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Change in assets and liabilities: |
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Accounts receivable |
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( |
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( |
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Inventories |
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( |
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( |
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Other current assets |
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Accounts payable and accrued expenses |
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( |
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( |
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Income taxes payable |
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Other operating assets and liabilities, net |
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( |
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Net Cash Provided By Operating Activities |
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Cash Flow From Investing Activities |
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Additions to property, plant and equipment |
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( |
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( |
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Other |
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( |
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( |
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Net Cash Used In Investing Activities |
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( |
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( |
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Cash Flow From Financing Activities |
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Long-term debt (repayments) |
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( |
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Short-term debt (repayments), net of borrowings |
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( |
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( |
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Proceeds from stock options exercised |
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Payment of cash dividends |
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( |
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( |
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Net Cash Used In Financing Activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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Net Change In Cash and Cash Equivalents |
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( |
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( |
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Cash and Cash Equivalents at Beginning of Period |
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Cash and Cash Equivalents at End of Period |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
5
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED
(Unaudited)
(In millions)
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
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Cash paid during the period for: |
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Interest (net of amounts capitalized) |
$ |
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$ |
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Income taxes |
$ |
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$ |
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Supplemental disclosure of non-cash investing activities: |
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Property, plant and equipment expenditures included in Accounts Payable |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
6
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
|
Number of Shares |
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Amounts |
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Common |
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Treasury |
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Common |
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Additional |
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Retained |
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Accumulated |
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Treasury |
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Total |
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December 31, 2021 |
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( |
) |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Net income |
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0.0 |
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0.0 |
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Other comprehensive |
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0.0 |
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0.0 |
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Cash dividends |
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0.0 |
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0.0 |
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( |
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( |
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Stock purchases |
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( |
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( |
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Stock based compensation |
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March 31, 2022 |
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( |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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December 31, 2022 |
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( |
) |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Net income |
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0.0 |
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0.0 |
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Other comprehensive |
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0.0 |
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0.0 |
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Cash dividends |
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0.0 |
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0.0 |
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( |
) |
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( |
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Stock based compensation |
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0.0 |
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( |
) |
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March 31, 2023 |
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( |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
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See Notes to Condensed Consolidated Financial Statements (Unaudited).
7
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions, except per share data)
These condensed consolidated financial statements have been prepared by Church & Dwight Co., Inc. (the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for all periods presented have been made. Results of operations for interim periods may not be representative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”).
The Company incurred research and development expenses in the first quarter of 2023 and 2022 of $
Recently Adopted Accounting Pronouncements
In September 2022, the FASB issued new accounting guidance intended to add certain qualitative and quantitative disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. The Company has adopted the standard which resulted in additional disclosures. Refer to Note 13.
Inventories consist of the following:
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March 31, |
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December 31, |
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2023 |
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2022 |
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Raw materials and supplies |
$ |
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$ |
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Work in process |
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Finished goods |
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Total |
$ |
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$ |
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8
PP&E consists of the following:
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March 31, |
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December 31, |
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2023 |
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2022 |
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Land |
$ |
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$ |
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Buildings and improvements |
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Machinery and equipment |
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Software |
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Office equipment and other assets |
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Construction in progress |
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Gross PP&E |
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Less accumulated depreciation and amortization |
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Net PP&E |
$ |
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$ |
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
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Depreciation expense on PP&E |
$ |
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$ |
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Basic EPS is calculated based on income available to holders of the Company’s common stock (“Common Stock”) and the weighted average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the Company's stock-based compensation plans.
The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:
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Three Months Ended |
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March 31, |
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March 31, |
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2023 |
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2022 |
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Weighted average common shares outstanding - basic |
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Dilutive effect of stock options and other unvested stock-based awards |
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Weighted average common shares outstanding - diluted |
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Antidilutive stock options outstanding |
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9
In the first quarter of 2023, the Company updated its Long-Term Incentive Program (“LTIP”) to provide employees with an award of stock options and newly issued restricted stock units (“RSUs”) and made an initial grant of performance share units ("PSUs") to members of the Company's Executive Leadership Team ("ELT"). In connection with these amendments, the awards, which were granted in the second quarter in previous years, were permanently accelerated to the first quarter in 2023. The stock option terms remain unchanged and are summarized in more detail in the Stock Based Compensation footnote within the Company’s 2022 Form 10-K. The Company recognizes the grant-date fair value for each of these awards, less estimated forfeitures, as compensation expense ratably over the vesting period.
Stock Options
The following table provides a summary of option activity:
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Weighted |
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Average |
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Weighted |
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Remaining |
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Average |
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Contractual |
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Aggregate |
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Exercise |
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Term |
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Intrinsic |
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Options |
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Price |
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(in Years) |
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Value |
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Outstanding at December 31, 2022 |
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$ |
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Granted |
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Exercised |
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( |
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Cancelled |
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( |
) |
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Outstanding at March 31, 2023 |
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$ |
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$ |
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Exercisable at March 31, 2023 |
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$ |
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$ |
|
||||
The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards:
|
Three Months Ended |
|
|||||
|
March 31, |
|
|
March 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Intrinsic Value of Stock Options Exercised |
$ |
|
|
$ |
|
||
Stock Compensation Expense Related to Stock Option Awards |
$ |
|
|
$ |
|
||
Issued Stock Options |
|
|
|
|
|
||
Weighted Average Fair Value of Stock Options issued (per share) |
$ |
|
|
|
|
||
Fair Value of Stock Options Issued |
$ |
|
|
|
|
||
|
Three Months Ended |
|
|||||
|
March 31, |
|
|
March 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Risk-free interest rate |
|
% |
|
|
- |
|
|
Expected life in years |
|
|
|
|
- |
|
|
Expected volatility |
|
% |
|
|
- |
|
|
Dividend yield |
|
% |
|
|
- |
|
|
Restricted Stock Units
The Company updated its LTIP in the first quarter of 2023 to add RSUs to its annual employee compensation program. As a result of this amendment, the Company granted employees
Additionally, in connection with the Hero Acquisition (see Note 10),
10
Performance Stock Units
In the first quarter of 2023, the Company granted PSUs to members of the Executive Leadership Team including the CEO, with an aggregate award equal to
On October 28, 2021, the Board authorized a new share repurchase program, under which the Company may repurchase up to $
The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at March 31, 2023 and December 31, 2022:
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
Input |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
|
Level |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
Level 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term borrowings |
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Term loan due December 22, 2024 |
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
The Company recognizes transfers between input levels as of the actual date of the event. There were no transfers between input levels during the three months ended March 31, 2023.
Refer to Note 2 in the Form 10-K for a description of the methods and assumptions used to estimate the fair value of each class of financial instruments reflected in the condensed consolidated balance sheets.
11
Changes in interest rates, foreign exchange rates, the price of the Company's Common Stock and commodity prices expose the Company to market risk. The Company manages these risks by the use of derivative instruments, such as cash flow and fair value hedges, diesel and commodity hedge contracts, equity derivatives and foreign exchange forward contracts. The Company does not use derivatives for trading or speculative purposes. Refer to Note 3 in the Form 10-K for a discussion of each of the Company’s derivative instruments in effect as of December 31, 2022.
The notional amount of a derivative instrument is the nominal or face amount used to calculate payments made on that instrument. Notional amounts are presented in the following table:
|
|
Notional |
|
|
Notional |
|
||
|
|
Amount |
|
|
Amount |
|
||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Derivatives designated as hedging instruments |
|
|
|
|
|
|
||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
||
Diesel fuel contracts |
|
|
|
|
||||
Commodities contracts |
|
|
|
|
||||
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
||
Equity derivatives |
|
$ |
|
|
$ |
|
||
The fair values and amount of gain (loss) recognized in income and Other Comprehensive Income (“OCI”) associated with the derivative instruments disclosed above did not have a material impact on the Company’s condensed consolidated financial statements during the three months ended March 31, 2023.
12
On October 13, 2022, the Company acquired all of the issued and outstanding shares of capital stock of Hero Cosmetics, Inc. ("Hero"), the developer of the HERO® brand which includes the MIGHTY PATCH® acne treatment products (the “Hero Acquisition”). The Company paid $
The preliminary fair values of the net assets at acquisition are set forth as follows:
Accounts receivable |
$ |
|
|
Inventory |
|
|
|
Other current assets |
|
|
|
Property, plant and equipment |
|
|
|
Trade name |
|
|
|
Other intangible assets |
|
|
|
Goodwill |
|
|
|
Accounts payable and accrued expenses |
|
( |
) |
Deferred and Other Long-term Liabilities |
|
( |
) |
Deferred income taxes |
|
( |
) |
Business acquisition liabilities - long-term |
|
( |
) |
Cash purchase price (net of cash acquired) |
$ |
|
The trade name and other intangible assets were valued using a discounted cash flow model. The trade name and other intangible assets recognized from the Hero Acquisition have useful lives which range from
On December 24, 2021, the Company acquired all of the outstanding equity of Dr. Harold Katz, LLC and HK-IP International, Inc., the owners of the THERABREATH® brand of oral care products business (the “TheraBreath Acquisition”). The Company paid $
13
The fair values of the net assets at acquisition are set forth as follows:
Accounts receivable |
$ |
|
|
Inventory |
|
|
|
Trade name (indefinite lived) |
|
|
|
Other intangible assets |
|
|
|
Goodwill |
|
|
|
Accounts payable and accrued expenses |
|
( |
) |
Business acquisition liabilities - long-term |
|
( |
) |
Cash purchase price (net of cash acquired) |
$ |
|
The trade names and other intangible assets were valued using a discounted cash flow model. The life of the amortizable intangible assets recognized from the TheraBreath Acquisition have a useful life which ranges from
The Company has intangible assets of substantial value on its consolidated balance sheet. These intangible assets are generally related to intangible assets with a useful life, indefinite-lived trade names and goodwill. The Company determines whether an intangible asset (other than goodwill) has a useful life based on multiple factors, including how long the Company intends to generate cash flows from the asset. These intangible assets are more fully explained in the following sections.
Intangible Assets With a Useful Life
The following table provides information related to the carrying value of intangible assets with a useful life:
|
March 31, 2023 |
|
|
|
|
December 31, 2022 |
|
||||||||||||||||||||||
|
Gross |
|
|
|
|
|
|
|
|
Amortization |
|
Gross |
|
|
|
|
|
|
|
|
|
|
|||||||
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
Period |
|
Carrying |
|
|
Accumulated |
|
|
|
|
|
|
|
|||||||
|
Amount |
|
|
Amortization |
|
|
Net |
|
|
(Years) |
|
Amount |
|
|
Amortization |
|
|
Impairments |
|
|
Net |
|
|||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Trade Names |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Customer Relationships |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||||
Patents/Formulas |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||||
Total |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Intangible amortization expense was $
In the fourth quarter of 2022, the Company determined that a review of our ability to recover the carrying values of the global FINISHING TOUCH FLAWLESS intangible assets was necessary based on the discontinuance of certain products at a major retailer. The FINISHING TOUCH FLAWLESS assets consist of the definite-lived trade name, customer relationships and technology assets recorded at acquisition. The Company evaluated our ability to recover the intangible assets by comparing the carrying amount to the future undiscounted cash flows and determined that the cash flows would not be sufficient to recover the carrying value of the assets. After determining the estimated fair value of the assets, which included a reduction in cash flows due to the loss of distribution mentioned above along with an expected continued decline in discretionary consumption and higher interest rates, a non-cash impairment charge of $
14
Indefinite-Lived Intangible Assets
The following table presents the carrying value of indefinite lived intangible assets:
|
March 31, |
|
|
December 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Trade Names |
$ |
|
|
$ |
|
||
The Company’s indefinite lived intangible impairment review is completed in the fourth quarter of each year.
Fair value for indefinite lived intangible assets was estimated based on a “relief from royalty” or “excess earnings” discounted cash flow method, which contains numerous variables that are subject to change as business conditions change, and therefore could impact fair values in the future. The key assumptions used in determining fair value are sales growth, profitability margins, tax rates, discount rates and royalty rates. The Company determined that the fair value of all indefinite lived intangible assets for each of the years in the three-year period ended December 31, 2022 exceeded their respective carrying values based upon the forecasted cash flows and profitability.
In recent years the Company’s global TROJAN® business, specifically the condom category, has not grown and competition has increased. In addition, profitability was negatively impacted by inflation throughout 2022, resulting in higher input costs and discount rates, and supply shortages for packaging materials. As a result, the TROJAN business has experienced declining sales and profits resulting in a reduction in expected future cash flows which have eroded a portion of the excess between the fair and carrying value of the trade name. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the TROJAN trade name. The carrying value of the TROJAN trade name is $
The Company’s global WATERPIK business has recently experienced a significant decline in customer demand for many of its products, primarily due to lower consumer spending for discretionary products from inflation and a growing number of water flosser consumers switching to more value-branded products. As a result, the WATERPIK business has experienced declining sales and profits resulting in a reduction in expected future cash flows which have eroded a substantial portion of the excess between the fair and carrying value of the trade name. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the WATERPIK trade name. The carrying value of the WATERPIK trade name is $
15
Goodwill
The carrying amount of goodwill is as follows:
|
Consumer |
|
|
Consumer |
|
|
Specialty |
|
|
|
|
||||
|
Domestic |
|
|
International |
|
|
Products |
|
|
Total |
|
||||
Balance at December 31, 2022 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Hero working capital adjustment |
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at March 31, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The result of the Company’s annual goodwill impairment test, performed in the beginning of the second quarter of 2022, determined that the estimated fair value substantially exceeded the carrying values of all reporting units. The determination of fair value contains numerous variables that are subject to change as business conditions change and therefore could impact fair value in the future.
The Company leases certain manufacturing facilities, warehouses, office space, railcars and equipment. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. All recorded leases are classified as operating leases and lease expense is recognized on a straight-line basis over the lease term. For leases beginning in 2019, lease components (base rental costs) are accounted for separately from the nonlease components (e.g., common-area maintenance costs). For leases that do not provide an implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
16
A summary of the Company’s lease information is as follows:
|
|
March 31, |
|
December 31, |
|
||
|
Classification |
2023 |
|
2022 |
|
||
Assets |
|
|
|
|
|
||
Right of use assets |
$ |
|
$ |
|
|||
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
||
Current lease liabilities |
$ |
|
$ |
|
|||
Long-term lease liabilities |
|
|
|
|
|||
Total lease liabilities |
|
$ |
|
$ |
|
||
|
|
|
|
|
|
||
Other information |
|
|
|
|
|
||
Weighted-average remaining lease term (years) |
|
|
|
|
|
||
Weighted-average discount rate |
|
|
% |
|
% |
||
|
Three Months |
|
|
Three Months |
|
||
|
Ended |
|
|
Ended |
|
||
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Statement of Income |
|
|
|
|
|
||
Lease cost(1) |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Other information |
|
|
|
|
|
||
Leased assets obtained in exchange for new lease liabilities net of modifications |
$ |
|
|
$ |
|
||
Cash paid for amounts included in the measurement of lease liabilities |
$ |
|
|
$ |
|
||
The Company’s minimum annual rentals including reasonably assured renewal options under lease agreements are as follows:
|
|
Operating |
|
|
|
|
Leases |
|
|
2023 |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 and thereafter |
|
|
|
|
Total future minimum lease commitments |
|
|
|
|
Less: Imputed interest |
|
|
( |
) |
Present value of lease liabilities |
|
$ |
|
|
17
Accounts payable and accrued expenses consist of the following:
|
March 31, |
|
|
|
December 31, |
|
||
|
2023 |
|
|
|
2022 |
|
||
Trade accounts payable |
$ |
|
|
|
$ |
|
||
Accrued marketing and promotion costs |
|
|
|
|
|
|
||
Accrued wages and related benefit costs |
|
|
|
|
|
|
||
Other accrued current liabilities |
|
|
|
|
|
|
||
Total |
$ |
|
|
|
$ |
|
||
In 2015, the Company initiated a Supply Chain Finance program (“SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from the Company for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. The Company is not party to those agreements and do not have an economic interest in the suppliers' decisions to sell their receivables and has not been required to pledge any assets as security nor to provide any guarantee to third-party finance providers or intermediaries. The SCF Program may allow suppliers more favorable terms than they could secure on their own. The terms of the Company's payment obligations are not impacted by a supplier’s participation in the SCF Program. The Company's payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate. As a result, the program does not have an impact to the Company's average days outstanding.
As of March 31, 2023, the obligations outstanding related to the SCF program amount to $
Short-term borrowings and long-term debt consist of the following:
|
March 31, |
|
|
December 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Short-term borrowings |
|
|
|
|
|
||
Commercial paper issuances |
$ |
|
|
$ |
|
||
Various debt due to international banks |
|
|
|
|
|
||
Total short-term borrowings |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
||
Term loan due December 22, 2024 |
|
|
|
|
|
||
|
|
|
|
|
|||
Less: Discount |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|||
Less: Discount |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|||
Less: Discount |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|||
Less: Discount |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|||
Less: Discount |
|
( |
) |
|
|
( |
) |
Debt issuance costs, net |
|
( |
) |
|
|
( |
) |
Net long-term debt |
$ |
|
|
$ |
|
||
18
The components of changes in accumulated other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
||||
|
Foreign |
|
|
Defined |
|
|
|
|
|
Other |
|
||||
|
Currency |
|
|
Benefit |
|
|
Derivative |
|
|
Comprehensive |
|
||||
|
Adjustments |
|
|
Plans |
|
|
Agreements |
|
|
Income (Loss) |
|
||||
Balance at December 31, 2021 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) before reclassifications |
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Amounts reclassified to consolidated statement of |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Tax benefit (expense) |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive income (loss) |
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Balance at March 31, 2022 |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2022 |
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Other comprehensive income (loss) before reclassifications |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Amounts reclassified to consolidated statement of |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Tax benefit (expense) |
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Other comprehensive income (loss) |
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Balance at March 31, 2023 |
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
16. Commitments, Contingencies and Guarantees
Commitments
a. The Company has a partnership with a supplier of raw materials that mines and processes sodium-based mineral deposits. The Company purchases the majority of its sodium-based raw material requirements from the partnership. The partnership agreement terminates upon two years’ written notice by either partner. Under the partnership agreement, the Company has an annual commitment to purchase
b. As of March 31, 2023, the Company had commitments of approximately $
c. As of March 31, 2023, the Company had various guarantees and letters of credit totaling $
d. In connection with the Zicam Acquisition, the Company deferred an additional cash payment of $
In connection with the TheraBreath Acquisition, the Company deferred an additional cash payment of $
In connection with the Hero Acquisition, the Company deferred an additional cash payment of $
Legal proceedings
e. In addition, in conjunction with the Company’s acquisition and divestiture activities, the Company entered into select guarantees and indemnifications of performance with respect to the fulfillment of the Company’s commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of
19
contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. Representations and warranties that survive the closing date generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, the Company also routinely enters into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on the Company’s financial condition, results of operations and cash flows.
f. In addition to the matters described above, from time to time in the ordinary course of its business the Company is the subject of, or party to, various pending or threatened legal, regulatory or governmental actions or other proceedings, including, without limitation, those relating to, intellectual property, commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are generally subject to considerable uncertainty and their outcomes, and any related damages, may not be reasonably predictable or estimable. Any such proceedings could result in a material adverse outcome negatively impacting the Company’s business, financial condition, results of operations or cash flows.
The following summarizes the balances and transactions between the Company and Armand Products Company (“Armand”) and the ArmaKleen Company (“ArmaKleen”), in each of which the Company holds a
|
Armand |
|
|
ArmaKleen |
|
||||||||||
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
|
March 31, |
|
||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Purchases by Company |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales by Company |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Outstanding Accounts Receivable |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Outstanding Accounts Payable |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Administration & Management Oversight Services (1) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Segment Information
The Company operates
Segment revenues are derived from the sale of the following products:
Segment |
|
|
Products |
|
Consumer Domestic |
|
Household and personal care products |
||
Consumer International |
|
Primarily personal care products |
||
SPD |
|
Specialty chemical products |
||
The Corporate segment income consists of equity in earnings of affiliates. As of March 31, 2023, the Company held
Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth in the table below.
20
Segment net sales and income before income taxes are as follows:
|
Consumer |
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|||||
|
Domestic |
|
|
International |
|
|
SPD |
|
|
Corporate(3) |
|
|
Total |
|
|||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
First Quarter of 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
First Quarter of 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
First Quarter of 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
First Quarter of 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Product line revenues from external customers are as follows:
|
Three Months Ended |
|
|||||
|
March 31, |
|
|
March 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Household Products |
$ |
|
|
$ |
|
||
Personal Care Products |
|
|
|
|
|
||
Total Consumer Domestic |
|
|
|
|
|
||
Total Consumer International |
|
|
|
|
|
||
Total SPD |
|
|
|
|
|
||
Total Consolidated Net Sales |
$ |
|
|
$ |
|
||
21
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
(In millions, except per share data)
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments
Supply Chain, Inflation, Labor, Consumer Demand and Competition
We continue to experience some adverse supply chain related impacts to our business, including raw material and labor shortages and interruptions. These negative impacts continue to result in some difficulty meeting consumer demand, particularly related to vitamins and our STERIMAR nasal congestion relief products. In addition, these negative impacts together with significant broad-based cost inflation and higher interest rates have affected input costs and consumer behavior. While conditions are improving and we expect pricing and productivity to offset inflation in the near term, we expect some raw material and labor shortages and input cost inflation to continue.
In addition, our Specialty Products business has been negatively impacted by the entrance of new foreign competition in the United States dairy market. We expect that low-priced imports will continue to enter the market.
For additional discussion of how we are addressing meeting retail customer demand for certain categories and decreased consumer demand for discretionary brands, as well as lower growth and increased competition in the vitamin category, please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.
Looking forward, the impact that these challenges will continue to have on our operational and financial performance will depend on future developments, including inflationary impacts, retail customers' acceptance of all or a portion of any price increases, our continued ability to obtain an adequate supply of products and materials, the spread and severity of new COVID-19 variants, and the long-term impact of vaccines. Additionally, we may be impacted by our ability to recruit and retain a workforce and engage third-parties to manufacture and distribute our products, as well as any future government actions affecting employers and employees, consumers and the economy in general. The impact of any of these potential future developments are uncertain and difficult to predict considering the rapidly evolving landscape.
We are monitoring the impact of both inflation and recessionary indicators including the effect of corresponding government actions, such as raising interest rates to counteract inflation, that may negatively impact consumer spending, and how these factors will potentially influence future cash flows for the short and long term. While we expect that many of these effects will be transitory and that our value focused portfolio positions us well in inflationary and slowing economic environments, it is impossible to predict their impact.
Results of Operations
Consolidated results
|
Three Months Ended |
|
|
Change vs. |
|
Three Months Ended |
|
||
|
March 31, 2023 |
|
|
Prior Year |
|
March 31, 2022 |
|
||
Net Sales |
$ |
1,429.8 |
|
|
10.2% |
|
$ |
1,297.2 |
|
Gross Profit |
$ |
622.0 |
|
|
12.6% |
|
$ |
552.5 |
|
Gross Margin |
|
43.5 |
% |
|
+90 basis points |
|
|
42.6 |
% |
Marketing Expenses |
$ |
122.3 |
|
|
20.0% |
|
$ |
101.9 |
|
Percent of Net Sales |
|
8.6 |
% |
|
+70 basis points |
|
|
7.9 |
% |
Selling, General & Administrative Expenses |
$ |
207.8 |
|
|
22.3% |
|
$ |
169.9 |
|
Percent of Net Sales |
|
14.5 |
% |
|
+140 basis points |
|
|
13.1 |
% |
Income from Operations |
$ |
291.9 |
|
|
4.0% |
|
$ |
280.7 |
|
Operating Margin |
|
20.4 |
% |
|
-120 basis points |
|
|
21.6 |
% |
Net income per share - Diluted |
$ |
0.82 |
|
|
-1.2% |
|
$ |
0.83 |
|
22
Net Sales
Net sales for the quarter ended March 31, 2023 were $1,429.8, an increase of $132.6 or 10.2% as compared to the same period in 2022. The components of the net sales increase are as follows:
|
Three Months Ended |
|
|
|
March 31, |
|
|
Net Sales - Consolidated |
2023 |
|
|
Product volumes sold |
|
(— |
%) |
Pricing/Product mix |
|
5.7 |
% |
Foreign exchange rate fluctuations |
|
(0.7 |
%) |
Acquired product lines (1) |
|
5.2 |
% |
Net Sales increase |
|
10.2 |
% |
For the three months ended March 31, 2023, the volume change reflects increased product unit sales in the Consumer International segment, offset by decreased product unit sales in the Consumer Domestic and the SPD segments. For the three months ended March 31, 2023, price/mix was favorable in all three segments.
Gross Profit / Gross Margin
Our gross profit was $622.0 for the three months ended March 31, 2023, a $69.5 increase as compared to the same period in 2022. Gross margin increased 90 basis points (“bps”) in the first quarter of 2023 compared to the same period in 2022, due to favorable price/mix/volume of 160 bps, the impact of productivity programs of 160 bps, business acquisition mix benefits of 120 bps, lower transportation costs of 70 bps, and favorable foreign exchange of 10 bps, offset by the impact of higher manufacturing costs, including labor, of 360 bps, and higher commodities of 70 bps.
Operating Expenses
Marketing expenses for the three months ended March 31, 2023 were $122.3, an increase of $20.4 or 20.0% as compared to the same period in 2022. Marketing expenses as a percentage of net sales in the first quarter of 2023 increased by 70 bps to 8.6% as compared to 7.9% in the same period in 2022 due to 140 bps on higher expense, as we increased marketing spend as fill rates improved, offset by 70 bps of leverage on higher net sales.
SG&A expenses were $207.8 in the first quarter of 2023, an increase of $37.9 or 22.3% as compared to the same period in 2022. SG&A as a percentage of net sales increased 140 bps to 14.5% in the first quarter of 2023 as compared to 13.1% in the same period in 2022. The increase is due to 260 bps on higher expenses, offset by 120 bps of leverage associated with higher sales. The higher expenses for the three-month period ended March 31, 2023 are primarily due to expenses related to the Hero Acquisition.
Other (income) expense, net was nominal for the three months ended March 31, 2023 and 2022.
Interest expense for the three months ended March 31, 2023 increased $12.2 to $28.8, as compared to the same period in 2022, primarily due to higher interest rates.
Income Taxes
The effective tax rate for the three months ended March 31, 2023 was 24.4%, compared to 23.2% in the same period in 2022. The increase in the tax rate is primarily due to lower stock option exercises and non-deductible compensation expense related to the restricted stock issued for the Hero Acquisition.
23
Segment results
We operate three reportable segments: Consumer Domestic, Consumer International and SPD. These segments are determined based on differences in the nature of products and organizational structure. We also have a Corporate segment.
Segment |
|
|
Products |
|
Consumer Domestic |
|
Household and personal care products |
||
Consumer International |
|
Primarily personal care products |
||
SPD |
|
Specialty chemical products |
||
The Corporate segment income consists of equity in earnings of affiliates. As of March 31, 2023, we held 50% ownership interests in each of Armand and ArmaKleen, respectively. Our equity in earnings of Armand and ArmaKleen, totaled $4.4 and $2.4 for the three months ended March 31, 2023 and 2022, respectively, and are included in the Corporate segment. Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth below.
Segment net sales and income before income taxes for the three months ended March 31, 2023 and March 31, 2022 are as follows:
|
Consumer |
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|||||
|
Domestic |
|
|
International |
|
|
SPD |
|
|
Corporate(3) |
|
|
Total |
|
|||||
Net Sales(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
First Quarter of 2023 |
$ |
1,116.9 |
|
|
$ |
230.6 |
|
|
$ |
82.3 |
|
|
$ |
0.0 |
|
|
$ |
1,429.8 |
|
First Quarter of 2022 |
|
995.1 |
|
|
|
214.6 |
|
|
|
87.5 |
|
|
|
0.0 |
|
|
|
1,297.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income before Income Taxes(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
First Quarter of 2023 |
$ |
228.7 |
|
|
$ |
28.9 |
|
|
$ |
6.8 |
|
|
$ |
4.4 |
|
|
$ |
268.8 |
|
First Quarter of 2022 |
|
222.7 |
|
|
|
29.6 |
|
|
|
11.5 |
|
|
|
2.4 |
|
|
|
266.2 |
|
Product line revenues from external customers are as follows:
|
Three Months Ended |
|
|||||
|
March 31, |
|
|
March 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Household Products |
$ |
601.6 |
|
|
$ |
520.5 |
|
Personal Care Products |
|
515.3 |
|
|
|
474.6 |
|
Total Consumer Domestic |
|
1,116.9 |
|
|
|
995.1 |
|
Total Consumer International |
|
230.6 |
|
|
|
214.6 |
|
Total SPD |
|
82.3 |
|
|
|
87.5 |
|
Total Consolidated Net Sales |
$ |
1,429.8 |
|
|
$ |
1,297.2 |
|
Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products, cold and remedy products, and gummy dietary supplements.
24
Consumer Domestic
Consumer Domestic net sales in the first quarter of 2023 were $1,116.9, an increase of $121.8 or 12.2% as compared to the same period in 2022. The components of the net sales change are the following:
|
Three Months Ended |
|
|
|
March 31, |
|
|
Net Sales - Consumer Domestic |
2023 |
|
|
Product volumes sold |
|
(0.9 |
%) |
Pricing/Product mix |
|
6.4 |
% |
Acquired product lines (1) |
|
6.7 |
% |
Net Sales increase |
|
12.2 |
% |
The increase in net sales for the three months ended March 31, 2023, reflects the impact of the Hero Acquisition, ARM & HAMMER® Liquid Detergent, ARM & HAMMER® Cat Litter, THERABREATH® mouth wash, and XTRA® Liquid Detergent partially offset by declines in VITAFUSION® and L’IL CRITTERS® gummy vitamins, FINISHING TOUCH FLAWLESS® Hair Removal Products, and WATERPIK® Shower Heads.
Consumer Domestic income before income taxes for the first quarter of 2023 was $228.7, an increase of $6.0 as compared to the first quarter of 2022. The increase is due primarily to favorable price/mix of $55.8 and the impact of higher sales volumes of $27.0, offset by higher SG&A expenses of $35.9, higher marketing expenses of $19.3, higher manufacturing and distribution expenses of $11.6 and higher interest and other expenses of $9.9.
Consumer International
Consumer International net sales were $230.6 in the first quarter of 2023, an increase of $16.0 or 7.5% as compared to the same period in 2022. The components of the net sales change are the following:
|
Three Months Ended |
|
|
|
March 31, |
|
|
Net Sales - Consumer International |
2023 |
|
|
Product volumes sold |
|
6.8 |
% |
Pricing/Product mix |
|
4.8 |
% |
Foreign exchange rate fluctuations |
|
(4.1 |
%) |
Net Sales increase |
|
7.5 |
% |
Excluding the impact of foreign exchange rates, sales growth is driven by BATISTE, VITAFUSION® and L’IL CRITTERS® gummy vitamins and FEMFRESH in the Global Markets Group (“GMG”) business, BATISTE and GRAVOL in Canada, BATISTE in Australia and in Europe and ARM & HAMMER® Liquid Detergent and STERIMAR in Mexico.
25
Consumer International income before income taxes was $28.9 in the first quarter of 2023, an $0.7 decrease as compared to the first quarter of 2022. Higher manufacturing and commodity costs of $11.2, higher SG&A expenses of $2.5, unfavorable foreign exchange rates of $1.6, higher marketing expenses of $0.6, and higher interest and other expenses of $0.7, were partially offset by a favorable price/mix of $9.2 and the impact of higher sales volumes of $6.8.
Specialty Products (“SPD”)
SPD net sales were $82.3 in the first quarter of 2023, a decrease of $5.2 or 5.9% as compared to the same period in 2022. The components of the net sales change are the following:
|
Three Months Ended |
|
|
|
March 31, |
|
|
Net Sales - SPD |
2023 |
|
|
Product volumes sold |
|
(7.5 |
%) |
Pricing/Product mix |
|
1.6 |
% |
Net Sales decrease |
|
(5.9 |
%) |
Net sales decreased in the first quarter of 2023 primarily due to competitive imports within our domestic dairy segment.
SPD income before income taxes was $6.8 in the first quarter of 2023, a decrease of $4.7 as compared to the same period in 2022, due to higher SG&A costs of $2.2, the impact of lower sales volumes of $2.1, unfavorable manufacturing costs of $0.9 and higher marketing expenses of $0.6, offset by favorable price/product mix of $1.4.
Corporate
The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the three months of 2023 and 2022. The Corporate segment income before income taxes was $4.4 in the first quarter of 2023, as compared to $2.4 in the same period in 2022.
26
Liquidity and Capital Resources
On June 16, 2022, we entered into a credit agreement (the “Credit Agreement”) that provides for our $1,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”) that matures on June 16, 2027, unless extended. The Credit Agreement replaced our prior $1,000.0 unsecured revolving credit facility maturing on March 29, 2024 that was entered into on March 29, 2018. We have the ability to increase our borrowing up to an additional $750.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,500.0 commercial paper program.
As of March 31, 2023, we had $202.8 in cash and cash equivalents, and approximately $1,480.0 available through the Revolving Credit Facility and our commercial paper program. To preserve our liquidity, we invest cash primarily in government money market funds, prime money market funds, short-term commercial paper and short-term bank deposits.
In the first quarter of 2023, we repaid $200.0 of our $400.0 Term Loan due December 22, 2024 with cash on hand and commercial paper borrowings.
The current economic environment presents risks that could have adverse consequences for our liquidity. See “Unfavorable economic conditions could adversely affect demand for our products” under “Risk Factors” in Item 1A of the Form 10-K. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. We do not anticipate that current economic conditions will adversely affect our ability to comply with the financial covenant in the Credit Agreement because we currently are, and anticipate that we will continue to be, in compliance with the maximum leverage ratio requirement under the Credit Agreement.
On October 28, 2021, the Board authorized a new share repurchase program, under which we may repurchase up to $1,000.0 in shares of Common Stock (the “2021 Share Repurchase Program”). The 2021 Share Repurchase Program does not have an expiration and replaced the 2017 Share Repurchase Program. The 2021 Share Repurchase Program did not modify our evergreen share repurchase program, authorized by the Board on January 29, 2014, under which we may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under its incentive plans.
As of March 31, 2023, there remains $729.7 of share repurchase availability under the 2021 Share Repurchase Program.
On February 1, 2023, the Board declared a 4% increase in the regular quarterly dividend from $0.2625 to $0.2725 per share, equivalent to an annual dividend of $1.09 per share payable to stockholders of record as of February 15, 2023. The increase raises the annual dividend payout from $255.0 to approximately $265.0.
We anticipate that our cash from operations, together with our current borrowing capacity, will be sufficient to fund our share repurchase programs, pay debt and interest as it comes due, fund dividends, and meet our capital expenditure program costs. Capital expenditures in 2023 are expected to be approximately $250.0 primarily for manufacturing capacity investments in laundry, litter and vitamins to support expected future sales growth. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.
Cash Flow Analysis
|
Three Months Ended |
|
|||||
|
March 31, |
|
|
March 31, |
|
||
|
2023 |
|
|
2022 |
|
||
Net cash provided by operating activities |
$ |
273.1 |
|
|
$ |
152.8 |
|
Net cash used in investing activities |
$ |
(29.6 |
) |
|
$ |
(15.7 |
) |
Net cash used in financing activities |
$ |
(311.7 |
) |
|
$ |
(202.6 |
) |
Net Cash Provided by Operating Activities – Our primary source of liquidity is the cash flow provided by operating activities, which is dependent on net income and changes in working capital. Our net cash provided by operating activities in the first three months ended March 31, 2023 increased by $120.3 to $273.1 as compared to $152.8 in the same period in 2022 due to an improvement in working capital and an increase in cash earnings (net income adjusted for non-cash items). The improvement in working capital is primarily related to lower investment in inventory for our discretionary brands and lower incentive compensation payments in 2023. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended March 31, 2023 and 2022:
27
|
As of |
|
|
|
|
||||||
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
Change |
|
|||
Days of sales outstanding in accounts receivable ("DSO") |
|
27 |
|
|
|
28 |
|
|
|
(1 |
) |
Days of inventory outstanding ("DIO") |
|
72 |
|
|
|
69 |
|
|
|
3 |
|
Days of accounts payable outstanding ("DPO") |
|
73 |
|
|
|
80 |
|
|
|
7 |
|
Cash conversion cycle |
|
26 |
|
|
|
17 |
|
|
|
9 |
|
Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two-period average method, increased nine days from the prior year. We continue to focus on reducing our working capital requirements.
Net Cash Used in Investing Activities – Net cash used in investing activities during the first three months of 2023 was $29.6, primarily reflecting $25.0 for property, plant and equipment additions. Net cash used in investing activities during the first three months of 2022 was $15.7, primarily reflecting $15.6 for property, plant and equipment additions.
Net Cash Used in Financing Activities – Net cash used in financing activities during the first three months of 2023 was $311.7 reflecting $255.6 of net debt payments, $66.3 of cash dividend payments, partially offset by $10.2 of proceeds from stock option exercises. Net cash used in financing activities during the first three months of 2022 was $202.6, reflecting $149.9 of net debt payments and $63.7 of cash dividend payments, partially offset by $11.0 of proceeds from stock option exercises.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk
For quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II in the Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission (the “Commission”), and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
b) Change in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurring during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, including, among others, statements relating to net sales and earnings growth; the impact of the COVID-19 pandemic and the Company’s response; gross margin changes; trade, marketing and SG&A spending; marketing expense as a percentage of net sales; sufficiency of cash flows from operations; earnings per share; the impact of new accounting pronouncements; cost savings programs; recessionary conditions; interest rates; inflation; consumer demand and spending; the effects of competition; the effect of product mix; volume growth, including the effects of new product launches into new and existing categories; the decline of condom usage; the Company’s hedge programs; the impact of foreign exchange, and commodity price fluctuations; impairments and other charges; the Company’s investments in joint ventures; the impact of acquisitions (including earn-outs) and divestitures; capital expenditures; the Company’s effective tax rate; the impact of tax audits; tax changes; the effect of the credit environment on the Company’s liquidity and capital resources; the Company’s fixed rate debt; compliance with covenants under the Company’s debt instruments; the Company’s commercial paper program; the Company’s current and anticipated future borrowing capacity to meet capital expenditure program costs; the Company’s share repurchase programs; payment of dividends;
28
environmental and regulatory matters; the availability and adequacy of raw materials, including trona reserves and the conversion of such reserves; and the customers and consumer acceptance of certain ingredients in our products. Other forward-looking statements in this report are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable terms. These statements represent the intentions, plans, expectations and beliefs of the Company, and are based on assumptions that the Company believes are reasonable but may prove to be incorrect. In addition, these statements 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. Factors that could cause such differences include a decline in market growth, retailer distribution and consumer demand (as a result of, among other things, political, economic and marketplace conditions and events), including those relating to the outbreak of contagious diseases; other impacts of the COVID-19 pandemic and its impact on the Company’s operations, customers, suppliers, employees, and other constituents, and market volatility and impact on the economy (including contributions to recessionary conditions), resulting from global, nationwide or local or regional outbreaks or increases in infections, new variants, and the risk that the Company will not be able to successfully execute its response plans with respect to the pandemic or localized outbreaks and the corresponding uncertainty; the impact of regulatory changes or policies associated with the COVID-19 pandemic, including continuing or renewed shutdowns of retail and other businesses in various jurisdictions; the impact of new legislation such as the U.S. CARES Act, the EU Medical Device Regulation, new cosmetic and device regulations in Mexico, and the U.S. Modernization of Cosmetic Regulation Act; the impact on the global economy of the Russia/Ukraine war, including the impact of export controls and other economic sanctions; potential recessionary conditions or economic uncertainty; the impact of continued shifts in consumer behavior, including accelerating shifts to on-line shopping; unanticipated increases in raw material and energy prices, including as a result of the Russia/Ukraine war or other inflationary pressures; delays and increased costs in manufacturing and distribution; increases in transportation costs; labor shortages; the impact of price increases for our products; the impact of inflationary conditions; the impact of supply chain and labor disruptions; the impact of severe or inclement weather on raw material and transportation costs; adverse developments affecting the financial condition of major customers and suppliers; competition; changes in marketing and promotional spending; growth or declines in various product categories and the impact of customer actions in response to changes in consumer demand and the economy, including increasing shelf space or on-line share of private label and retailer-branded products or other changes in the retail environment; consumer and competitor reaction to, and customer acceptance of, new product introductions and features; the Company’s ability to maintain product quality and characteristics at a level acceptable to our customers and consumers; disruptions in the banking system and financial markets; the Company’s borrowing capacity and ability to finance its operations and potential acquisitions; higher interest rates; foreign currency exchange rate fluctuations; implications of the United Kingdom’s withdrawal from the European Union; transition to, and shifting economic policies in the United States; potential changes in export/import and trade laws, regulations and policies of the United States and other countries, including any increased trade restrictions or tariffs; increased or changing regulation regarding the Company’s products and its suppliers in the United States and other countries where it or its suppliers operate; market volatility; issues relating to the Company’s information technology and controls; the impact of natural disasters, including those related to climate change, on the Company and its customers and suppliers, including third party information technology service providers; integrations of acquisitions or divestiture of assets; the outcome of contingencies, including litigation, pending regulatory proceedings and environmental matters; and changes in the regulatory environment in the countries where we do business.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the United States federal securities laws. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the United States Securities and Exchange Commission (the “Commission”).
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General
The Company, in the ordinary course of its business, is subject of, or party to, various pending or threatened legal actions, government investigations and proceedings from time to time, including, without limitation, those relating to commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are subject to many uncertainties and the outcome of certain pending or threatened legal actions may not be reasonably predictable and any related damages may not be estimable. Certain legal actions could result in an adverse outcome for us, and any such adverse outcome could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Form 10-K, which could materially affect the Company’s business, financial condition or future results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company repurchases shares of its Common Stock from time to time pursuant to its publicly announced share repurchase programs.
On October 28, 2021, the Board authorized a new share repurchase program under which the Company may purchase up to $1,000.0 in shares of Common Stock (the “2021 Share Repurchase Program”). The 2021 Share Repurchase Program does not have an expiration and replaces the Company’s 2017 Share Repurchase Program. The 2021 Share Repurchase Program does not modify the Company’s evergreen share repurchase program, authorized by the Board on January 29, 2014, under which the Company may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under its incentive plans.
As a result of the Company’s recent stock repurchases, there remains $729.7 of share repurchase availability under the 2021 Share Repurchase Program as of March 31, 2023.
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ITEM 6. EXHIBITS
Exhibit Index
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(3.1) |
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(3.2) |
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(3.3) |
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(10.1) |
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(10.2) |
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(10.4) |
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(31.1) |
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(31.2) |
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(32.1) |
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(32.2) |
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(101.INS) |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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(101.SCH) |
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Inline XBRL Taxonomy Extension Schema Document.
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(101.CAL) |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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(101.DEF) |
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Inline XBRL Taxonomy Extension Definition Linkbase Document.
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(101.LAB) |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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(101.PRE) |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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(104) |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CHURCH & DWIGHT CO., INC. |
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(REGISTRANT) |
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DATE: |
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April 27, 2023 |
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/s/ Richard A. Dierker |
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RICHARD A. DIERKER |
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Executive Vice President |
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and Chief Financial Officer |
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(Principal Financial Officer) |
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DATE: |
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April 27, 2023 |
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/s/ Joseph J. Longo |
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JOSEPH J. LONGO |
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VICE PRESIDENT AND |
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CONTROLLER |
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(PRINCIPAL ACCOUNTING OFFICER) |
32
EXHIBIT 31.1
CERTIFICATIONS
I, Matthew T. Farrell, certify that:
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Date: |
April 27, 2023 |
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/s/ Matthew T. Farrell |
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Matthew T. Farrell |
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President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Richard A. Dierker, certify that:
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Date: |
April 27, 2023 |
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/s/ Richard A. Dierker |
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Richard A. Dierker |
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Executive Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT AND
18 U.S.C. SECTION 1350
I, Matthew T. Farrell, President and Chief Executive Officer of Church & Dwight Co., Inc. (the “Company”), hereby certify that, based on my knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By: |
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/s/ Matthew T. Farrell |
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Matthew T. Farrell |
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President and Chief Executive Officer |
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Dated: |
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April 27, 2023 |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT AND
18 U.S.C. SECTION 1350
I, Richard A. Dierker, Executive Vice President and Chief Financial Officer of Church & Dwight Co., Inc. (the “Company”), hereby certify that, based on my knowledge:
1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By: |
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/s/ Richard A.Dierker |
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Richard A. Dierker |
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Executive Vice President and Chief Financial Officer |
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Dated: |
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April 27, 2023 |