Church & Dwight Co., Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports full-year results; the supplied text does not provide a clear standalone fourth-quarter income statement or cash-flow value.
Business context
Church & Dwight makes household, personal care and specialty products, including ARM & HAMMER, OXICLEAN, TROJAN, WATERPIK and THERABREATH. Its segments are Consumer Domestic (76% of 2021 sales), Consumer International (18%) and Specialty Products Division (6%). The company completed its THERABREATH acquisition on December 24, 2021.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $5,190.1 million | $4,895.8 million | +6.0% |
| Gross profit / gross margin | $2,263.5 million / 43.6% | $2,214.2 million / 45.2% | Profit +2.2%; margin down 160 bps |
| Operating income / margin | $1,079.1 million / 20.8% | $1,029.7 million / 21.0% | Income +4.8%; margin down 20 bps |
| Net income | $827.5 million | $785.9 million | +5.3% |
| Diluted EPS | $3.32 | $3.12 | +6.4% |
| Operating cash flow | $993.8 million | $990.3 million | +$3.5 million |
Sales drivers: Consolidated growth included 1.0% from volume, 3.3% from pricing/product mix, 0.9% from foreign exchange/other and 0.8% from acquired product lines net of divestitures. Higher pricing/mix and acquisitions supported sales, while Consumer Domestic volume declined slightly.
Costs and earnings: Gross margin pressure reflected higher manufacturing costs (including labor and commodities), transportation costs and tariffs. Productivity, favorable price/volume/mix and acquisition benefits partly offset those pressures. Marketing expense fell to $577.7 million from $591.2 million, partly because supply shortages constrained the ability to meet demand. SG&A increased to $606.7 million from $593.3 million. The effective tax rate was 19.8%, versus 19.3%.
Segments: Sales rose 4.6% in Consumer Domestic, 10.1% in Consumer International and 12.0% in SPD. Segment income before tax was $861.4 million, $127.3 million and $33.6 million, respectively; Consumer International benefited from volume and foreign exchange, while all segments faced higher manufacturing or commodity costs.
Cash, debt and capital allocation
- Cash and equivalents were $240.6 million at year-end, versus $183.1 million a year earlier. The company reported approximately $746 million available through its revolving facility and commercial paper program.
- Total debt was approximately $2.563 billion, net of debt issuance costs. About 75% carried fixed rates, with a weighted-average rate of 3.0%; the remaining debt was principally commercial paper and a 2024 term loan. $699.4 million was classified as current maturities.
- Operating cash flow was $993.8 million; investing cash outflow was $682.0 million, including $556.0 million for THERABREATH and $118.8 million of capital expenditures. Financing cash outflow was $252.1 million.
- The company paid $247.5 million in dividends and repurchased $500.0 million of stock in 2021. It returned $747.5 million to shareholders through dividends and repurchases. A new $1.0 billion repurchase authorization was approved; $729.7 million remained available at year-end.
- Management expected 2022 capital expenditures of approximately $216 million, primarily for manufacturing capacity in laundry, litter and vitamins. In January 2022, the board increased the quarterly dividend 4%, to $0.2625 per share.
Material changes, outlook and risks
- THERABREATH acquisition: The company paid $556.0 million, net of cash acquired, and recorded a preliminary $487.0 million indefinite-lived trade name. The acquired brand reported approximately $100 million in 2021 annual sales. Funding included a $400 million three-year term loan and $400 million of 2.3% senior notes due 2031.
- Operating outlook: Management expected supplier-labor shortages to continue at least through the first half of 2022 and input-cost inflation through at least 2022. It anticipated supply availability might begin improving in the second half of 2022, but cautioned that timing was uncertain. Price increases and capacity expansion were intended to address inflation and supply constraints; customer acceptance and effectiveness were not assured.
- Notable items: A $98.0 million reduction in the Flawless acquisition liability reduced SG&A expense in 2021. The company recorded an $11.3 million impairment charge for Passport business intangible assets. TROJAN’s tradename had a $176.4 million carrying value, with estimated fair value 70% above carrying value; further deterioration in performance could lead to impairment. No goodwill impairment was recorded.
- Key risks: Persistent raw-material, labor, freight and supply-chain cost pressures; product availability and customer service; competitive pricing and private-label growth; reliance on major retailers (Walmart accounted for 24% of sales); consumer demand and channel shifts; COVID-19 and new variants; and foreign exchange, tariffs and regulation. The company also disclosed product, litigation, environmental/ESG, privacy/cybersecurity and acquisition-integration risks. It reported no relevant legal proceedings required to be disclosed under Item 3 for the period, while noting ordinary-course matters whose outcomes may be uncertain.
- Liquidity and controls: Management said it expected operating cash and borrowing capacity to fund debt service, dividends, planned capital spending and repurchases as implemented, and anticipated compliance with its leverage covenant. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Most important facts for investors to verify
- Whether planned price increases recover inflation without materially reducing volume or market share.
- Whether supply and transportation constraints ease as management anticipated, and the resulting impact on margins and customer fulfillment.
- THERABREATH’s post-acquisition sales, profitability and integration progress relative to its purchase price and recorded intangible value.
- Debt maturities, refinancing and covenant capacity, particularly the $699.4 million current debt classification and 2022 note maturities.
- TRADEMARK impairment sensitivity for TROJAN and the performance and recoverability of Passport assets.
- Working-capital trends, shareholder distributions and the balance between buybacks, dividends, acquisitions and capacity investment.