Church & Dwight ( NYSE: CHD ) shares marked a steep decline on Friday after narrowly missing earnings expectations and offering a softer than expected forecast for the full year.
While adjusted EPS beat on the bottom line, net sales of $1.33B came up $10M short of estimates. Despite the only narrow miss on top line estimates, gross margin contraction attracted some attention.
“Gross margin contracted 220 basis points reflecting higher commodities and third-party manufacturing costs,” CEO Matthew Farrell explained. “In April we announced another round of mid to high single digit price increases on our Fabric Care and Litter products which became effective in July. In addition to incremental pricing actions, we will continue to pursue additional measures to offset these higher costs through productivity and pack size changes.”
He added that he expects another $50M in incremental costs associated with these impacts for the full year. Additionally, the price increases pursued by the company are expected to lead to significant substitution effects. Though Farrell was quick to note that the company's value brands are likely to benefit.
“In Q4, we expect higher organic growth and significant EPS growth due to accelerated trade down to our value portfolio, recovery of fill rates in personal care and promotional support closer to pre COVID levels. Prior year Q4 was also burdened by one time charges and investments,” he told investors.
Still, second half EPS are expected to be flat versus 2021 as margins continue to contract. Meanwhile, third quarter organic sales are expected to “reflect a slowdown in discretionary brands” and lead to a 19% decrease in year over year EPS from a tough third quarter comparison. Management blamed inflation and anticipated promotional activity for the adverse movement in the third quarter.
Net sales growth for the full year is expected to range from 4 to 5%, below the 6.4% expectation set by analysts ahead of earnings.
Church & Dwight ( CHD ) shares slid 8.23% on Friday. The slide echoes a similar drop for consumer staples peer Procter & Gamble .
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Church & Dwight shares drop as sales, guidance disappoint