Optimizing Core Brands And Launching BATISTE Light Will Secure Success

Key Takeaways

• Optimizing the brand portfolio by divesting underperforming units and supply chain adjustments aims to boost margins and stabilize earnings.
  
• Investment in new products and marketing for emerging brands targets revenue growth and improved market positioning.
  
• U.S. sales decline and underperforming brands, coupled with tariff risks and macroeconomic challenges, threaten Church & Dwight's revenue and profitability growth.

Catalysts

Develops, manufactures, and markets household, personal care, and specialty products.

• Church & Dwight plans to optimize its brand portfolio by shutting down or selling underperforming businesses such as Flawless, Spinbrush, and Waterpik showerhead, allowing the company to focus on core brands and potentially improve net margins by reducing tariff impact and focusing on higher profitability segments.
  
• Strategic supply chain changes, including moving Waterpik flosser production out of China, are expected to reduce the company's tariff exposure significantly, potentially improving margins and stabilizing earnings by lowering costs associated with tariffs.
  
• The company is launching several new products, including BATISTE Light, enhanced taste profiles for gummy vitamins, and new HERO acne solutions, aiming to boost revenue through innovation-driven growth and increased market penetration in key categories.
  
• Church & Dwight plans to continue investing in marketing at 11% of net sales, driving brand awareness and market share growth, particularly for emerging brands like THERABREATH and HERO, which could lead to higher revenues and improved market positioning.
  
• Church & Dwight's historical competence in M&A, coupled with current capital allocation strategies, suggests potential future acquisitions could drive growth and enhance earnings by expanding the company's product portfolio and market reach.

Church & Dwight Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Church & Dwight's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 15.0% in 3 years time.
• Analysts expect earnings to reach $983.0 million (and earnings per share of $4.1) by about May 2028, up from $577.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.5x on those 2028 earnings, down from 39.3x today. This future PE is greater than the current PE for the US Household Products industry at 18.2x.
• Analysts expect the number of shares outstanding to grow by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Church & Dwight Future Earnings Per Share Growth

Risks

• A decrease in U.S. organic sales due to retail destocking and weakening consumer demand may continue to negatively impact revenue, as suggested by the revised full-year outlook indicating 0% to 2% growth.
  
• The necessary divestment or shutdown of underperforming brands such as Flawless, Spinbrush, and Waterpik showerhead, which contribute $150 million in net sales, presents a risk to total sales and profitability.
  
• Tariff exposure presents a persistent financial risk, with expected impacts reducing gross margins, as the company navigates mitigating actions that will still incur a net expense of around $30 million in the fiscal year.
  
• Continued weakness in the Gummy Vitamin business, which notably lagged the category with a 19% decline in consumption, risks further degrading market position and impacting revenue and margins.
  
• Broader macroeconomic factors such as sequentially weakening U.S. consumer spending and retail inventory reductions suggest a challenging environment for sustaining revenue and EPS growth.

Valuation

• The analysts have a consensus price target of $99.596 for Church & Dwight based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $72.12.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.6 billion, earnings will come to $983.0 million, and it would be trading on a PE ratio of 30.5x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $92.07, the analyst price target of $99.6 is 7.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.