Annual Report Church & Dwight Co., Inc
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® CHURCH & DWIGHT CO., INC. 2014 ANNUAL REPORT 44437.indd 1 3/20/15 12:23 PM Church & Dwight Co., Inc. Key Financial Results 2014 Annual Report 2014 Key Financial Results On January 28, 2015, the • Worldwide net sales increased 3.2%. Company declared an 8% • Organic sales increased 3.5%.(1) increase in its quarterly • Gross profi t margin decreased 90 basis points to 44.1%. • Operating profi t margin decreased 10 basis points to 19.4%. dividend from $0.31 per • Net cash from operations increased to a record level of $540 million. share to $0.335 per share. • Earnings per share increased 7.9%. NET SALES EARNINGS PER SHARE (in millions of dollars) (in dollars) 2012 $2,922 2012 $2.45 2013 $3,194 2013 $2.79 2014 $3,298 2014 $3.01 For additional information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. (1) The reference to the 3.5% organic net sales growth in 2014 refl ects the following adjustments to the 3.2% reported on net sales growth: foreign currency exchange fl uctuations +0.5% partially offset by acquisitions (0.4%) and divestitures +0.2%. 44437.indd 2 3/20/15 12:23 PM P. (01) Company Profi le Church & Dwight Co., Inc. 2014 Annual Report The combination of the core Church & Dwight Co., Inc., founded in 1846, is the leading U.S. producer of sodium ARM & HAMMER brand and bicarbonate, popularly known as baking soda, a natural product that cleans, deodorizes, leavens and buffers. The Company’s ARM & HAMMER brand is one of the other eight power brands the nation’s most trusted trademarks for a broad range of consumer and specialty make Church & Dwight one products developed from the base of bicarbonate and related technologies. of the leading consumer Church & Dwight’s consumer products business is organized into two segments: packaged goods companies Consumer Domestic, which encompasses both household and personal care products, in the United States. and Consumer International, which primarily consists of personal care products. The Company has nine key brands representing approximately 80% of its consumer sales. These so-called “power brands” include ARM & HAMMER, TROJAN, OXICLEAN, SPINBRUSH, FIRST RESPONSE, NAIR, ORAJEL, XTRA and VMS. About 40% of the Company’s domestic consumer products are sold under the ARM & HAMMER brand name and derivative trademarks, such as ARM & HAMMER liquid and powder laundry detergent, ARM & HAMMER DENTAL CARE Toothpaste and ARM & HAMMER SUPER SCOOP Clumping Cat Litter. The remaining eight power brands have all been added to the Company’s portfolio since 2001 through several acquisitions. The combination of the core ARM & HAMMER brand and the other eight power brands make Church & Dwight one of the leading consumer packaged goods companies in the United States. Church & Dwight’s third business segment is Specialty Products. This business is a leader in specialty inorganic chemicals, animal nutrition, and specialty cleaners. Growth Driven by 9 Power Brands ® SPINBRUSH ORAJEL #1 Battery Powered Toothbrush Brand #1 Oral Care Pain Relief Brand FIRSTFIRST RESPONSERESPO XTRA #1 Branded Pregnancy Kit #1 Extreme Value Laundry Detergent NAIR VITAFUSION & L’IL CRITTERS #1 Depilatory Brand #1 Gummy Brands for Kids and Adults Based on AC Nielsen 52 weeks ending 12/21/14 All-Outlet 44437.indd 3 3/20/15 12:23 PM Church & Dwight Co., Inc. P. (02) Stockholder Letter 2014 Annual Report James R. Craigie Matthew T. Farrell Patrick D. de Maynadier Chairman and Executive Vice President, Executive Vice President Chief Executive Offi cer Chief Operating Offi cer and General Counsel and Secretary Chief Financial Offi cer Dear Fellow Stockholder, It is my pleasure to report the completion of another very successful year in which we achieved record sales and profi ts. More importantly, these record results positively impacted the measure that I believe matters most to so many of our stockholders—Total Shareholder Return (TSR)—which refl ects the combination of stock price appreciation and dividends. We manage Church & Dwight with the goal of delivering strong TSR to you and will continue to focus on this goal. In 2014, we achieved a TSR of 21.1%. Over the past decade, we delivered an annual TSR of approximately 18%, signifi cantly better than the 5% TSR of the S&P 500 stock index during the same period. In dollar terms, if you invested $1,000 on January 1, 2005 in both Church & Dwight stock and the S&P 500 stock index, the Church & Dwight investment was worth approximately $5,300 on December 31, 2014, whereas the S&P 500 investment was worth only approximately $1,700. That signifi cant difference in investment refl ects the work of an experienced management team that is never satisfi ed with the status quo. Our TSR is Driven by 10 Key Initiatives Despite an increasingly challenging business environment, we have been able to deliver strong TSR by continuing to focus on 10 key initiatives that are the “secret sauce” to our success: (1) Resilient Product Portfolio Church & Dwight’s diverse consumer product portfolio, consisting of both premium (60%) and value (40%) brands with over 80% of our sales in the U.S., enables us to succeed in various economic environ- ments. We believe no other consumer packaged goods company has such a well-balanced portfolio of both premium and value brands. We have continued to build consumer loyalty to our value brands through a steady stream of appealing new products. At the same time, we are maintaining strong marketing spending and launching innovative new products to support our premium brands and deliver increased sales and profi ts through higher market share. Finally, our U.S. centric portfolio enables the Company to minimize the serious headwinds other more global companies are currently facing due to weakening foreign currencies. (2) Build Mega Brands While we sell over 80 brands, 4 of these brands generate over 60% of our revenues and profi ts. These 4 brands, which we call our “Mega Brands,” are ARM & HAMMER, TROJAN, OXICLEAN, and VITAMINS, MINERALS & SUPPLEMENTS (VMS). All 4 Mega Brands are market leaders. In 2014, our business teams did an outstanding job in driving revenue and profi t growth on three of four Mega Brands through innovative new products, increased marketing spending and superb sales execution. 44437.indd 4 3/20/15 12:24 PM P. (03) Stockholder Letter Church & Dwight Co., Inc. 2014 Annual Report (3) Ferociously Defend Our Brands Despite being a relatively small player in the consumer packaged goods industry, we have defended and will continue to aggressively defend our brands when they are challenged by larger competitors. Most of our expert management team started their careers by working for larger companies and, as a result, they know how to compete, and win, when challenged. (4) Drive International Growth While we are largely a U.S. centric company, over the past 14 years, we have increased our sales in foreign countries to approximately 16% of our total sales. We have fully operational subsidiaries in 6 countries (Canada, Mexico, U.K., France, Australia and Brazil) and export to over 100 other countries. Our Consumer International team has delivered outstanding growth over the past 5 years with Net Sales increases averaging over 6% annually and Operating Profi t increases averaging 10% annually. (5) Expand Gross Margin Gross margin expansion fuels our organic growth because it enables us to increase marketing spending. Unprecedented competitive pressure and fl uctuating commodity costs unfavorably impacted the gross margin of our business by 90 basis points in 2014. In 2015, we expect to expand gross margin and to build upon the 1500 basis point gross margin increase achieved between 2001 and 2014. Driving higher gross margin through productivity improvements, launching higher margin new products and buying margin accretive businesses continue to be paramount goals for us. (6) Superior Overhead Management Maintaining tight controls on our overhead costs has been a hallmark of Church & Dwight. Since 2006, we have increased revenues by 70% or $1.4 billion and lowered our overhead costs as a percentage of revenue from 15.0% to 12.1%. As a result, we believe we have the highest revenue per employee of any major consumer packaged goods company. And, our management team “walks the walk” on this issue as, unlike some other companies, we do not have perks like company cars, company planes, or country club memberships. (7) Expert Management Team Unlike some of our competitors that rotate their top managers between functions and have high turnover, we believe in utilizing leadership expertise by encouraging longevity in all functional areas. Our managers’ expertise in their respective functional areas is a key factor in our ability to build and defend our brands, lower our costs, and make smart acquisitions. (8) Proven Track Record on Acquisitions We have an enviable track record in making accretive acquisitions. We have very clear acquisition guidelines and our experienced management team has demonstrated that we can quickly integrate acquisitions to leverage our existing capital base in manufacturing, logistics and purchasing and deliver meaningful earnings accretion. We acquired three of our four current Mega Brands. In 2014 and early 2015, we made two small bolt-on acquisitions. We are actively seeking additional businesses to acquire and have the fi nancial fi repower to execute potential acquisitions that fi t our guidelines. 44437.indd 5 3/20/15 12:24 PM Church & Dwight Co., Inc. P. (04) Stockholder Letter 2014 Annual Report (9) Superior Free Cash Flow Conversion Our annual free cash fl ow has increased by over $300 million over the past 10 years.