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Thursday, 04/10/2014 9:42:09 AM

Thursday, April 10, 2014 9:42:09 AM

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Church & Dwight -- >>> 3 Reasons to Buy Church & Dwight

By Philip Saglimbeni

April 9, 2014

Any investor who took the time to read the latest conference call from Church & Dwight (NYSE: CHD ) had to come away at least a little excited. The enthusiasm from management, particularly Executive Chairman and CEO James Craigie, was great to witness and should inspire confidence in investors regarding the future of the relatively small company.

Of particular interest were CEO Craigie's top reasons to be excited for the future of Church & Dwight. Together, the reasons form a compelling argument for investing in the small consumer goods company over larger competitors like Procter & Gamble (NYSE: PG ) .

Craigie's top three
In the company's most recent investor's presentation, CEO Craigie laid out 10 reasons Church & Dwight can continue to deliver superior total shareholder returns compared to competitors going forward. The first three are especially worth considering since they pertain to overall brand strength.

The first reason is that Church & Dwight has a recession-proof portfolio thanks to its mix of both premium and value brands. The company breaks its product mix down to 55% premium and 45% value. For instance, the company's laundry detergent brands Ultra and Xtra offer consumers a 50%-65% discount to Procter & Gamble's Tide brand. Church & Dwight's fabric softeners are also marked 50% lower than Procter & Gamble's Bounce brand. So, in tough economic times, the company's value brands will shine.

A second reason is that management at Church & Dwight is now focusing intensively on four main brands: ARM & HAMMER, OxiClean, Trojan, and the company's vitamin division, which includes Vitafusion and Lil' Critters.

Together, these brands have grown revenue over 50% since 2008 and currently represent approximately 60% of the company's total sales and profits. Therefore, they are vital to Church & Dwight's overall growth. With a more intense focus, management can better direct marketing efforts to what it refers to as its mega brands going forward.

Some of management's stated benefits of focusing on only four brands are that advertisements become more cost-effective, there's greater licensing potential, money for research and development can be used more effectively, and the company can reduce organizational costs.

A third reason to invest in Church & Dwight is that it continues to defend its brands and market share. Management has done this over the years through innovative new product introductions and increased advertisement spending.

For example, when Procter & Gamble attacked the laundry detergent market in 2009 with an aggressive marketing campaign for its Tide brand, Church & Dwight responded by strengthening its OxiClean brand. Through new product spinoffs, clever co-branding tactics and increased advertising, Church & Dwight actually grew the OxiClean brand's market share by 3% from 2009 to 2013.

Superior growth
Also a highlight for CEO Craigie is Church & Dwight's stellar performance for shareholders over the last decade. CEO Craigie enthusiastically explained, "Look at the total shareholder return of this company over the past 10 years, which is my tenure as Chairman and CEO. I mean, I just want to stop at this slide for the next hour. But just look at this, 394% return since July of 2004, blows away anybody else in this industry, about 6 times the S&P 500."

He then highlighted the company's impressive dividend achievements. The company has raised its dividend 10 times in the last 10 years at an average annual dividend growth rate of 30%. This compares favorably to Procter & Gamble, which has raised its dividend 10 times in the last decade as well, but at a substantially lower annual growth rate of 10.6%.

Growth projections for Church & Dwight also beat out those of larger competitor PG. The company is projected to grow revenue 3.2% and EPS 9% in 2014 compared to PG's respective 1.1% and 4.2%.

Bottom line
It is not often that investors are presented with such enthusiasm from company management. However, Church & Dwight's CEO Jim Craigie has a lot to be excited about, as his company is currently firing on all cylinders and gaining ground on its larger competitors.

With a tighter focus on its four mega brands going forward, management at Church & Dwight appears set to increase the company's overall brand awareness among consumers and continue to outperform peers in the process.


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