Church & Dwight Relying on Value Brands as Consumers Switch to Less-Expensive Goods

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Researched by Industrial Info Resources (Sugar Land, Texas)--Since 2000, Church & Dwight Company Incorporated (NYSE:CHD) (Princeton, New Jersey) has nearly tripled its business, growing from a small household-goods business with about $750 million in sales through organic growth and good acquisitions. During that time, the company has shifted to become a more balanced household and personal-care business, Chairman and CEO James Craigie said at the recently held Morgan Stanley Global Consumer & Retail Conference in New York. The company's growth in recent history is almost entirely unmatched, he said. "As of [November 18], we were up over 8% this year -- one of the few stocks in the universe to do that," he said. "If you compare our stock versus any of the major stock market indices, you can see we have vastly outperformed them."

In light of the worldwide economic meltdown, Craigie said that he is worried but that the company is well positioned to endure the crisis. "We feel fortunate that our portfolio is better in tune as people trade down," he said. For example, they'll buy Arm & Hammer instead of the more-expensive Tide, he said. "We have more value brands than anybody else. But even with our portfolio I am concerned, so we're doing everything we can to drive our growth margins and manage our cash flow. We are doing an enormous amount of contingency planning."

When Craigie joined Church & Dwight in 2004, the company had $1.5 billion in sales and 3,800 employees, he said. Now, the company still has 3,800 employees, but revenues have grown almost 50% -- part organic, part acquisitions. "What that means is today Church & Dwight has more revenue per employee than even the mighty Procter & Gamble, who's 40 times our size," Craigie said. "That shouldn't happen, folks. That's because we're very lean, we're very mean, and we keep that overheard cost down." He said Church & Dwight publishes a chart every week in order to see how it fares against its peers in the consumer-packaged-goods arena. On a three- to five-year basis, the company has outperformed every one of them, except for Chattem Incorporated (NASDAQ:CHTT) (Chattanooga, Tennessee).

On a larger scale, Church & Dwight reviews Fortune magazine's "20 Most Admired Companies in America" list. "If you look at those in a retailer area, only Wal-Mart has outperformed us in just a 2008 year-to-date basis," Craigie said. "We've outperformed everybody on a three-, five- and 10-year basis." Even Microsoft (NASDAQ:MSFT) (Redmond, Washington).

Keys to Church & Dwight's business model:

• Strong revenue growth
• The company has eight core brands that make up 80% of revenues and profits. All of them, including Trojan, Arm & Hammer, Nair and Orajel, are market leaders, Craigie said. In the past two years, the company has been putting more effort into marketing the brands, and it is also focusing on fewer but bigger and better products, he said.
• Steady margin expansion
• In the past six years, Church & Dwight has increased margins by 10%. "We are fanatics about cutting costs," Craigie said. He said the company also looks for ways to reformulate and reduce packaging, and sometimes uses hedges on commodities. In New Jersey, the company is shutting down a laundry plant and building a more efficient one in York, Pennsylvania, he said. Industrial Info has been tracking the project since June. The $400 million facility is expected to become operational by the fourth quarter of next year, Craigie said.
• Aggressive overhead cost management
• The "lean, mean" company has been able to keep its employee count consistent while raising revenue by restructuring the organization to make it more efficient and to increase the speed at which decisions are made. Church & Dwight has also consolidated its worldwide supply chains.
• Acquisitions
• "We are very good at buying companies, blowing them up, taking their brands and getting rid of everything else," Craigie said. Church & Dwight buys only No. 1 or No. 2 brands, he said. "We don't want to buy plants, we don't want to buy headquarters. We don't want to buy anything but the brand," he said.
• Experienced and motivated management team
• "We're very proactive, highly committed, very passionate and very action-oriented," he said. An added bonus is that most, if not all, of the management team members have at least 15 years of experience at large companies -- the same ones Church & Dwight competes against every day.

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Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.