Church & Dwight Co., Inc
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ANNUAL REPORT CHURCH & DWIGHT CO., INC. — 2020 IN MILLIONS, EXCEPT PER SHARE DATA 2020 2019 reportedadjusted* reported adjusted* Net Sales $ 4,896 $ 4,896 $ 4,358 $ 4,358 Gross Profit Margin 45.2 % 45.2 % 45.5 % 45.5 % Income from Operations $ 1,030 $ 933 $ 840 $ 851 Operating Profit Margin 21.0 % 19.0 % 19.3 % 19.5 % Net Income $ 786 $ 713 $ 616 $ 624 Net Income Per Share—Diluted $ 3.12 $ 2.83 $ 2.44 $ 2.47 Dividends Per Share $ 0.96 $ 0.96 $ 0.91 $ 0.91 Year-end Stock Price $ 87.23 $ 87.23 $ 70.35 $ 70.35 On January 29, 2021, the Company declared a 5.2% increase in its quarterly dividend from $0.24 per share to $0.2525 per share. 2020 Key Financial Results – Worldwide net sales increased 12.3%. – Organic sales increased 9.6%. – Gross profit margin decreased 30 basis points to 45.2%. – Adjusted operating profit margin decreased 50 basis points to 19.0%. – Net cash from operations increased to a record level of $990.3 million. – Adjusted earnings per share increased 14.6%. NET SALES ADJUSTED EARNINGS PER SHARE (in millions of dollars) (in dollars) 2018 $4,146 2018 $2.27 2019 $4,358 2019 $2.47(1) 2020 $4,8962020 $2.83(2) 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, 2020. * This annual report includes non-GAAP financial measures, including adjusted income from operations, adjusted operating profit margin, adjusted net income, adjusted EPS, organic sales, and free cash flow, which differ from reported results using Generally Accepted Accounting Principles (GAAP). (1) This annual report presents adjusted EPS, namely, earnings per share calculated in accordance with GAAP, as adjusted to exclude significant one-time items that are not indicative of the Company’s period to period performance. We believe that this metric provides investors a useful perspective of underlying business trends and results and provides useful supplemental information regarding our year over year earnings per share growth. Adjusted 2019 EPS excludes a $0.02 positive impact from an earn-out reversal from the acquisition of Passport Food Safety Solutions, Inc., $0.03 negative impact from the loss on the sale of the consumer Brazil business, and $0.02 negative impact from the FLAWLESS acquisition earn-out estimate. (2) Adjusted 2020 EPS excludes a $0.28 positive FLAWLESS acquisition related earn-out adjustment and a $0.01 gain on the sale of an International Brand. Corporate Church & Dwight Co., Inc., founded in 1846, is the leading U.S. producer of sodium bicarbonate, popularly known as baking soda, a natural product that cleans, deodorizes, Information leavens and buffers. The Company’s ARM & HAMMER brand is one of the nation’s most trusted trademarks for a broad range of consumer and specialty products developed from the base of sodium bicarbonate and related technologies. Church & Dwight’s consumer products business is organized into two segments: Consumer Domestic, which encompasses both household and personal care products, and Consumer International, which primarily consists of personal care products. The Company has 13 key brands representing over 80% of its revenues. These “power brands” include ARM & HAMMER, TROJAN, OXICLEAN, SPINBRUSH, FIRST RESPONSE, NAIR, ORAJEL, XTRA, VMS (L’IL CRITTERS and VITAFUSION), BATISTE, WATERPIK, FLAWLESS and ZICAM. About 43% 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 cat litter, ARM & HAMMER dental care and ARM & HAMMER baking soda. The remaining 12 power brands have been added to the Company’s portfolio since 2001 through a series of acquisitions. The combination of the core ARM & HAMMER brands and the other 12 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 13 Power Brands XTRA L’IL CRITTERS & VITAFUSION OXICLEAN #1 Extreme Value #1 Gummy Brands for Kids #1 Laundry Additive Brand Laundry Detergent and Adults ARM & HAMMER SPINBRUSH FLAWLESS FIRST RESPONSE More aisles in the grocery store than #2 Battery Powered #1 Women’s Electric Hair #1 Branded Pregnancy Kit any other brand; A&H products are Toothbrush Brand Removal System in 86% of U.S. households WATERPIK ORAJEL BATISTE #1 Power Flosser and #1 #1 Oral Care Pain Relief Brand #1 Dry Shampoo Replacement Showerhead NAIR TROJAN ZICAM Based on U.S. AC Nielsen 52 weeks ending 12/26/20 All-Outlet #1 Depilatory Brand #1 Condom Brand #1 Adult Cold Shortening | 1 | MATTHEW T. FARRELL RICHARD A. DIERKER PATRICK D. DE MAYNADIER, ESQ. Chairman, President & Executive Vice President & Executive Vice President, Chief Executive Officer Chief Financial Officer General Counsel & Secretary Dear Fellow Stockholder, 2020 was a turbulent year due to the pandemic but we dinner for families in need. In addition, the Company emerged much stronger as a company. People often do their has contributed approximately $4.8 million to our best work when they are in a jam and it is safe to say that communities, which includes the retail value of product we did some of our best work in 2020. donations, delivering masks and hand sanitizers to hospitals where we live, donating to local food banks, and supporting We take pride in what we accomplished. We protected our local food establishments with gift certificates. people. We found a way to run the plants and warehouses safely. We set production and shipping records. We figured Despite the pandemic, our business continues to do well. out how to make hand sanitizer in our U.K. plant. We I am pleased to report another successful year of revenue and operated the Company with 2,000 remote employees. We earnings growth in 2020: pivoted our marketing messages to support a 60% increase in e-commerce sales. We installed new packaging lines with — Reported net sales were $4,896 million, a 12.3% increase. the assistance of off-site engineers using Google Glass. We added overflow warehouses, and we validated new suppliers — Organic sales increased 9.6% driven by 10.7% revenue and co-manufacturers. In our communities, we delivered growth in our Consumer Domestic business, 8.6% masks and hand sanitizers to hospitals where we live and revenue growth in our Consumer International business, donated to food banks. and a 0.4% increase in our Specialty Products business. In 2020, our Employee Giving Fund supported our — Gross margin decreased 30 basis points to 45.2%, communities by providing $1.2 million to 205 deserving primarily due to COVID-19 related costs, higher organizations through annual grants, disaster relief, and other commodities, higher transportation costs, labor increases, monetary support. Employees purchased back-to-school incremental tariffs and investments. These were partially supplies online to support disadvantaged youth, donated offset by our productivity improvements, leveraging our clothes and non-perishable items for clothing and food manufacturing costs with higher volumes and the impact drives, and provided supplies for a summer camp and holiday of higher pricing. | 2 | CHURCH & DWIGHT CO., INC. — ANNUAL REPORT 2020 — Adjusted EPS was $2.83 per share, a 14.6% increase. KEY DRIVERS OF TSR — We generated $990 million of cash from operating The following are the key drivers of our success: activities and invested $99 million in capital expenditures (1) A Diversified Product Portfolio resulting in free cash flow of $891 million. Church & Dwight’s diverse consumer product portfolio, These results positively impacted the measure that matters consisting of both premium (58%) and value (42%) brands, most to our stockholders. enables us to succeed in various economic environments. We believe no other consumer packaged goods (CPG) — Total Shareholder Return (TSR) — which reflects the company has such a well-balanced portfolio of both combination of stock price appreciation and dividends. premium and value brands. We manage Church & Dwight with the perennial goal of delivering strong TSR to you, our stockholders. In 2020, (2) Focus on Power Brands we achieved a TSR of 25.5%. Over the past decade, we While we sell over 80 brands, 13 of these brands generate delivered an annual TSR of approximately 19.5%, which over 80% of our revenues. These 13 brands, which we call was significantly better than the 11.6% TSR of the S&P our “power brands,” are ARM & HAMMER, TROJAN, 500 stock index during the same period. In dollar terms, OXICLEAN, VMS (L’IL CRITTERS and VITAFUSION), if you invested $1,000 on January 1, 2011 in each of XTRA, FIRST RESPONSE, SPINBRUSH, ORAJEL, Church & Dwight stock and the S&P 500 stock index, NAIR, BATISTE, WATERPIK, FLAWLESS and ZICAM. the Church & Dwight investment was worth $5,930 on December 31, 2020, whereas the S&P 500 investment Our 13 Power Brands are “Brands Consumers Love” and was worth only $2,987. That significant difference in consequently are market leaders. We connect with consumers investment reflects the work of a focused management through execution of creative marketing, innovative new team and a disciplined business model. products, and sustained marketing spending resulting in higher market shares for our brands. In 2020, 7 of our 13 EVERGREEN MODEL Power Brands grew or held share in our U.S. market. Our strong U.S. business delivered 10.7% organic revenue Our long-term mission is to maintain our track record growth this year, far exceeding our 2% long-term annual of delivering outstanding TSR.