UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
| |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2024
OR
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-10585
CHURCH & DWIGHT CO., INC.
(Exact name of registrant as specified in its charter)
| | |
Delaware |
| 13-4996950 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
500 Charles Ewing Boulevard, Ewing, NJ 08628
(Address of principal executive offices)
Registrant’s telephone number, including area code: (609) 806-1200
Securities registered pursuant to Section 12(b) of the Act:
| | | |
Title of each class | | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1 par value | | CHD | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | |
Large accelerated filer |
| ☒ |
| Accelerated filer |
| ☐ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
Emerging growth company |
| ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 30, 2024 there were 244,997,535 shares of Common Stock outstanding.
TABLE OF CONTENTS
PART I
PART II
PART I – FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(Unaudited)
(In millions, except per share data)
| | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | | | September 30, | | | September 30, | |
| 2024 | | | 2023 | | | 2024 | | | 2023 | |
Net Sales | $ | 1,510.6 | | | $ | 1,455.9 | | | $ | 4,525.1 | | | $ | 4,339.9 | |
Cost of sales | | 827.5 | | | | 809.6 | | | | 2,442.9 | | | | 2,432.7 | |
Gross Profit | | 683.1 | | | | 646.3 | | | | 2,082.2 | | | | 1,907.2 | |
Marketing expenses | | 185.8 | | | | 167.8 | | | | 490.2 | | | | 422.3 | |
Selling, general and administrative expenses | | 231.7 | | | | 222.7 | | | | 684.5 | | | | 643.6 | |
Tradename and other asset impairments | | 357.1 | | | | 0.0 | | | | 357.1 | | | | 0.0 | |
(Loss) Income from Operations | | (91.5 | ) | | | 255.8 | | | | 550.4 | | | | 841.3 | |
Equity in earnings of affiliates | | 3.0 | | | | 1.7 | | | | 7.2 | | | | 8.1 | |
Interest income | | 10.6 | | | | 4.5 | | | | 17.7 | | | | 7.2 | |
Interest expense | | (23.4 | ) | | | (27.2 | ) | | | (71.6 | ) | | | (83.9 | ) |
Other income (expense), net | | (0.1 | ) | | | (0.8 | ) | | | (0.5 | ) | | | (0.5 | ) |
(Loss) Income before Income Taxes | | (101.4 | ) | | | 234.0 | | | | 503.2 | | | | 772.2 | |
Income taxes | | (26.3 | ) | | | 56.5 | | | | 107.1 | | | | 170.3 | |
Net (Loss) Income | $ | (75.1 | ) | | $ | 177.5 | | | $ | 396.1 | | | $ | 601.9 | |
| | | | | | | | | | | |
Weighted average shares outstanding - Basic | | 244.6 | | | | 246.0 | | | | 244.1 | | | | 244.9 | |
Weighted average shares outstanding - Diluted | | 244.6 | | | | 248.7 | | | | 246.7 | | | | 247.8 | |
Net (loss) income per share - Basic | $ | (0.31 | ) | | $ | 0.72 | | | $ | 1.62 | | | $ | 2.46 | |
Net (loss) income per share - Diluted | $ | (0.31 | ) | | $ | 0.71 | | | $ | 1.61 | | | $ | 2.43 | |
Cash dividends per share | $ | 0.28 | | | $ | 0.27 | | | $ | 0.85 | | | $ | 0.82 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(In millions)
| | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | | | September 30, | | | September 30, | |
| 2024 | | | 2023 | | | 2024 | | | 2023 | |
Net (Loss) Income | $ | (75.1 | ) | | $ | 177.5 | | | $ | 396.1 | | | $ | 601.9 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | |
Foreign exchange translation adjustments | | 11.6 | | | | (6.4 | ) | | | 5.3 | | | | (0.7 | ) |
Defined benefit plan adjustments gain (loss) | | 0.0 | | | | 1.3 | | | | (0.2 | ) | | | 2.8 | |
(Loss) income from derivative agreements | | (0.7 | ) | | | 3.5 | | | | 3.9 | | | | (2.2 | ) |
Other comprehensive income (loss) | | 10.9 | | | | (1.6 | ) | | | 9.0 | | | | (0.1 | ) |
Comprehensive (loss) income | $ | (64.2 | ) | | $ | 175.9 | | | $ | 405.1 | | | $ | 601.8 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share and per share data)
| | | | | | | |
| September 30, | | | December 31, | |
| 2024 | | | 2023 | |
Assets | | | | | |
Current Assets | | | | | |
Cash and cash equivalents | $ | 752.1 | | | $ | 344.5 | |
Accounts receivable, less allowances of $7.0 and $7.3 | | 555.3 | | | | 526.9 | |
Inventories | | 658.5 | | | | 613.3 | |
Other current assets | | 50.8 | | | | 45.0 | |
Total Current Assets | | 2,016.7 | | | | 1,529.7 | |
| | | | | |
Property, Plant and Equipment, Net | | 915.3 | | | | 927.7 | |
Equity Investment in Affiliates | | 12.0 | | | | 12.0 | |
Trade Names and Other Intangibles, Net | | 2,919.7 | | | | 3,302.3 | |
Goodwill | | 2,433.3 | | | | 2,431.5 | |
Other Assets | | 369.2 | | | | 366.0 | |
Total Assets | $ | 8,666.2 | | | $ | 8,569.2 | |
| | | | | |
Liabilities and Stockholders' Equity | | | | | |
Current Liabilities | | | | | |
Short-term borrowings | $ | 3.4 | | | $ | 3.9 | |
Current portion of long-term debt | 0.0 | | | | 199.9 | |
Accounts payable | | 705.9 | | | | 630.6 | |
Accrued expenses and other liabilities | | 529.6 | | | | 580.4 | |
Income taxes payable | | 7.7 | | | | 7.2 | |
Total Current Liabilities | | 1,246.6 | | | | 1,422.0 | |
| | | | | |
Long-term Debt | | 2,208.2 | | | | 2,202.2 | |
Deferred Income Taxes | | 658.6 | | | | 743.1 | |
Deferred and Other Long-term Liabilities | | 326.4 | | | | 313.7 | |
Business Acquisition Liabilities | | 32.7 | | | | 32.8 | |
Total Liabilities | | 4,472.5 | | | | 4,713.8 | |
| | | | | |
Commitments and Contingencies | | | | | |
Stockholders' Equity | | | | | |
Preferred Stock, $1.00 par value, Authorized 2,500,000 shares; none issued | | 0.0 | | | | 0.0 | |
Common Stock, $1.00 par value, Authorized 600,000,000 shares and 293,709,982 shares issued
as of September 30, 2024 and December 31, 2023 | | 293.7 | | | | 293.7 | |
Additional paid-in capital | | 534.7 | | | | 454.8 | |
Retained earnings | | 6,200.9 | | | | 6,012.3 | |
Accumulated other comprehensive loss | | (18.2 | ) | | | (27.2 | ) |
Common stock in treasury, at cost: 48,777,196 shares as of September 30, 2024 and 50,557,219 shares as of December 31, 2023 | | (2,817.4 | ) | | | (2,878.2 | ) |
Total Stockholders' Equity | | 4,193.7 | | | | 3,855.4 | |
Total Liabilities and Stockholders' Equity | $ | 8,666.2 | | | $ | 8,569.2 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(In millions)
| | | | | | | | |
| | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2024 | | | 2023 | |
Cash Flow From Operating Activities | | | | | | |
Net Income | | $ | 396.1 | | | $ | 601.9 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation expense | | | 59.8 | | | | 52.8 | |
Amortization expense | | | 117.6 | | | | 114.1 | |
Deferred income taxes | | | (92.0 | ) | | | (6.0 | ) |
Tradename and other asset impairments | | | 357.1 | | | | 0.0 | |
Equity in net earnings of affiliates | | | (7.2 | ) | | | (8.1 | ) |
Distributions from unconsolidated affiliates | | | 7.2 | | | | 7.2 | |
Non-cash compensation expense | | | 50.6 | | | | 51.5 | |
Other | | | 7.1 | | | | 1.9 | |
Change in assets and liabilities: | | | | | | |
Accounts receivable | | | (25.9 | ) | | | (37.4 | ) |
Inventories | | | (35.0 | ) | | | (24.5 | ) |
Other current assets | | | 4.0 | | | | 11.2 | |
Accounts payable | | | 88.0 | | | | (10.1 | ) |
Accrued expenses | | | (42.3 | ) | | | 42.1 | |
Income taxes payable | | | (5.0 | ) | | | 9.3 | |
Other operating assets and liabilities, net | | | (16.2 | ) | | | (10.8 | ) |
Net Cash Provided By Operating Activities | | | 863.9 | | | | 795.1 | |
Cash Flow From Investing Activities | | | | | | |
Additions to property, plant and equipment | | | (125.2 | ) | | | (121.5 | ) |
Graphico acquisition | | | (19.9 | ) | | | 0.0 | |
Proceeds from sale of assets | | | 6.6 | | | | 0.0 | |
Other | | | 0.4 | | | | (6.9 | ) |
Net Cash Used In Investing Activities | | | (138.1 | ) | | | (128.4 | ) |
Cash Flow From Financing Activities | | | | | | |
Long-term debt borrowings | | | 0.4 | | | | 0.0 | |
Long-term debt (repayments) | | | (200.6 | ) | | | (200.0 | ) |
Short-term debt (repayments), net of borrowings | | 0.0 | | | | (70.6 | ) |
Proceeds from stock options exercised | | | 90.3 | | | | 107.6 | |
Payment of cash dividends | | | (207.4 | ) | | | (199.9 | ) |
Deferred financing and other | | | (1.0 | ) | | | (0.1 | ) |
Net Cash Used In Financing Activities | | | (318.3 | ) | | | (363.0 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | 0.1 | | | | (0.7 | ) |
Net Change In Cash and Cash Equivalents | | | 407.6 | | | | 303.0 | |
Cash and Cash Equivalents at Beginning of Period | | | 344.5 | | | | 270.3 | |
Cash and Cash Equivalents at End of Period | | $ | 752.1 | | | $ | 573.3 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW-CONTINUED
(Unaudited)
(In millions)
| | | | | | | | |
| | Nine Months Ended | |
| | September 30, | | | September 30, | |
| | 2024 | | | 2023 | |
Cash paid during the period for: | | | | | | |
Interest (net of amounts capitalized) | | $ | 62.9 | | | $ | 77.0 | |
Income taxes | | $ | 204.3 | | | $ | 167.0 | |
Supplemental disclosure of non-cash investing activities: | | | | | | |
Property, plant and equipment expenditures included in Accounts Payable | | $ | 15.9 | | | $ | 47.1 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | | Amounts | |
| Common
Stock | | | Treasury
Stock | | | Common
Stock | | | Additional
Paid-In
Capital | | | Retained
Earnings | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Treasury
Stock | | | Total
Stockholders'
Equity | |
December 31, 2022 | | 293.7 | | | | (49.8 | ) | | $ | 293.7 | | | $ | 366.2 | | | $ | 5,524.6 | | | $ | (29.3 | ) | | $ | (2,665.3 | ) | | $ | 3,489.9 | |
Net income | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 203.2 | | | | 0.0 | | | | 0.0 | | | | 203.2 | |
Other comprehensive
income (loss) | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 3.1 | | | | 0.0 | | | | 3.1 | |
Cash dividends | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (66.3 | ) | | | 0.0 | | | | 0.0 | | | | (66.3 | ) |
Stock based compensation expense and
stock option plan transactions | | 0.0 | | | | 0.3 | | | | 0.0 | | | | 27.8 | | | | (0.3 | ) | | | 0.0 | | | | 10.3 | | | | 37.8 | |
March 31, 2023 | | 293.7 | | | | (49.5 | ) | | $ | 293.7 | | | $ | 394.0 | | | $ | 5,661.2 | | | $ | (26.2 | ) | | $ | (2,655.0 | ) | | $ | 3,667.7 | |
Net income | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 221.2 | | | | 0.0 | | | | 0.0 | | | | 221.2 | |
Other comprehensive
income (loss) | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (1.6 | ) | | | 0.0 | | | | (1.6 | ) |
Cash dividends | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (66.7 | ) | | | 0.0 | | | | 0.0 | | | | (66.7 | ) |
Stock based compensation expense and
stock option plan transactions | | 0.0 | | | | 1.8 | | | | 0.0 | | | | 28.6 | | | | (0.4 | ) | | | 0.0 | | | | 62.2 | | | | 90.4 | |
June 30, 2023 | | 293.7 | | | | (47.7 | ) | | $ | 293.7 | | | $ | 422.6 | | | $ | 5,815.3 | | | $ | (27.8 | ) | | $ | (2,592.8 | ) | | $ | 3,911.0 | |
Net income | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 177.5 | | | | 0.0 | | | | 0.0 | | | | 177.5 | |
Other comprehensive
income (loss) | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (1.6 | ) | | | 0.0 | | | | (1.6 | ) |
Cash dividends | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (66.9 | ) | | | 0.0 | | | | 0.0 | | | | (66.9 | ) |
Stock based compensation
expense and stock option plan
transactions | | 0.0 | | | | 0.3 | | | | 0.0 | | | | 18.8 | | | | 0.0 | | | | 0.0 | | | | 11.7 | | | | 30.5 | |
September 30, 2023 | | 293.7 | | | | (47.4 | ) | | $ | 293.7 | | | $ | 441.4 | | | $ | 5,925.9 | | | $ | (29.4 | ) | | $ | (2,581.1 | ) | | $ | 4,050.5 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY-CONTINUED
(Unaudited)
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | | Amounts | |
| Common
Stock | | | Treasury
Stock | | | Common
Stock | | | Additional
Paid-In
Capital | | | Retained
Earnings | | | Accumulated
Other
Comprehensive
Income (Loss) | | | Treasury
Stock | | | Total
Stockholders'
Equity | |
December 31, 2023 | | 293.7 | | | | (50.6 | ) | | $ | 293.7 | | | $ | 454.8 | | | $ | 6,012.3 | | | $ | (27.2 | ) | | $ | (2,878.2 | ) | | $ | 3,855.4 | |
Net income | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 227.7 | | | | 0.0 | | | | 0.0 | | | | 227.7 | |
Other comprehensive
income (loss) | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (2.1 | ) | | | 0.0 | | | | (2.1 | ) |
Cash dividends | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (69.0 | ) | | | 0.0 | | | | 0.0 | | | | (69.0 | ) |
Stock based compensation expense and
stock option plan transactions | | 0.0 | | | | 1.4 | | | | 0.0 | | | | 43.5 | | | | (0.2 | ) | | | 0.0 | | | | 45.4 | | | | 88.7 | |
March 31, 2024 | | 293.7 | | | | (49.2 | ) | | $ | 293.7 | | | $ | 498.3 | | | $ | 6,170.8 | | | $ | (29.3 | ) | | $ | (2,832.8 | ) | | $ | 4,100.7 | |
Net income | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 243.5 | | | | 0.0 | | | | 0.0 | | | | 243.5 | |
Other comprehensive
income (loss) | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.2 | | | | 0.0 | | | | 0.2 | |
Cash dividends | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (69.2 | ) | | | 0.0 | | | | 0.0 | | | | (69.2 | ) |
Stock based compensation expense and
stock option plan transactions | | 0.0 | | | | 0.3 | | | | 0.0 | | | | 20.4 | | | | 0.1 | | | | 0.0 | | | | 9.8 | | | | 30.3 | |
June 30, 2024 | | 293.7 | | | | (48.9 | ) | | $ | 293.7 | | | $ | 518.7 | | | $ | 6,345.2 | | | $ | (29.1 | ) | | $ | (2,823.0 | ) | | $ | 4,305.5 | |
Net loss | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (75.1 | ) | | | 0.0 | | | | 0.0 | | | | (75.1 | ) |
Other comprehensive
income (loss) | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 10.9 | | | | 0.0 | | | | 10.9 | |
Cash dividends | | 0.0 | | | | 0.0 | | | | 0.0 | | | | 0.0 | | | | (69.2 | ) | | | 0.0 | | | | 0.0 | | | | (69.2 | ) |
Stock based compensation expense and
stock option plan transactions | | 0.0 | | | | 0.3 | | | | 0.0 | | | | 16.0 | | | | 0.0 | | | | 0.0 | | | | 5.6 | | | | 21.6 | |
September 30, 2024 | | 293.7 | | | | (48.6 | ) | | $ | 293.7 | | | $ | 534.7 | | | $ | 6,200.9 | | | $ | (18.2 | ) | | $ | (2,817.4 | ) | | $ | 4,193.7 | |
See Notes to Condensed Consolidated Financial Statements (Unaudited).
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In millions, except per share data)
These condensed consolidated financial statements have been prepared by Church & Dwight Co., Inc. (the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for all periods presented have been made. Results of operations for interim periods may not be representative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”).
The Company incurred research and development expenses in the third quarter of 2024 and 2023 of $36.0 and $30.3, respectively. The Company incurred research and development expenses in the first nine months of 2024 and 2023 of $99.1 and $87.2, respectively. These expenses are included in selling, general and administrative (“SG&A”) expenses.
2.New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update (“ASU”) 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations, intended to add certain qualitative and quantitative disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. The Company adopted the standard on January 1, 2023 which resulted in additional disclosures. Refer to Note 13.
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and included within segment profit and loss. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adoption on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure which includes amendments that further expand income tax disclosures, by requiring the disaggregation of information in the rate reconciliation table, and income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied either prospectively or retrospectively. The Company is currently evaluating the impact of adoption on the Company’s related disclosures.
There have been no other accounting pronouncements issued but not yet adopted by the Company which are expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
Inventories consist of the following:
| | | | | | | | |
| | September 30, | | | December 31, | |
| | 2024 | | | 2023 | |
Raw materials and supplies | | $ | 140.6 | | | $ | 137.5 | |
Work in process | | | 51.5 | | | | 40.2 | |
Finished goods | | | 466.4 | | | | 435.6 | |
Total | | $ | 658.5 | | | $ | 613.3 | |
4.Property, Plant and Equipment, Net (“PP&E”)
PP&E consists of the following:
| | | | | | | |
| September 30, | | | December 31, | |
| 2024 | | | 2023 | |
Land | $ | 28.3 | | | $ | 28.3 | |
Buildings and improvements | | 346.2 | | | | 317.8 | |
Machinery and equipment | | 987.8 | | | | 895.1 | |
Software | | 128.1 | | | | 122.6 | |
Office equipment and other assets | | 125.3 | | | | 105.2 | |
Construction in progress(1) | | 213.8 | | | | 348.4 | |
Gross PP&E | | 1,829.5 | | | | 1,817.4 | |
Less accumulated depreciation | | 914.2 | | | | 889.7 | |
Net PP&E | $ | 915.3 | | | $ | 927.7 | |
(1) In connection with the Vitamins, Minerals and Supplements ("VMS") impairment review completed in the third quarter of 2024, the Company recorded an impairment charge of $60.0 in SG&A of Construction in progress assets. The charge was recorded in the Consumer Domestic segment. Refer to Note 11 for additional details.
| | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | | | September 30, | | | September 30, | |
| 2024 | | | 2023 | | | 2024 | | | 2023 | |
Depreciation expense on PP&E | $ | 21.0 | | | $ | 18.2 | | | $ | 59.8 | | | $ | 52.8 | |
5.Earnings Per Share (“EPS”)
Basic EPS is calculated based on income (loss) available to holders of the Company’s common stock (“Common Stock”) and the weighted average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential Common Stock issuable pursuant to the Company's stock-based compensation plans.
The following table sets forth a reconciliation of the weighted average number of shares of Common Stock outstanding to the weighted average number of shares outstanding on a diluted basis:
| | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | | | September 30, | | | September 30, | |
| 2024 | | | 2023 | | | 2024 | | | 2023 | |
Weighted average common shares outstanding - basic | | 244.6 | | | | 246.0 | | | | 244.1 | | | | 244.9 | |
Dilutive effect of stock options | 0.0 | | (1) | | 2.7 | | | | 2.6 | | | | 2.9 | |
Weighted average common shares outstanding - diluted | | 244.6 | | | | 248.7 | | | | 246.7 | | | | 247.8 | |
Antidilutive stock options outstanding | | 1.1 | | | | 2.5 | | | | 1.1 | | | | 2.6 | |
(1) Due to the net loss during the three months ended September 30, 2024, there was no dilutive effect of stock options because the impact would be antidilutive.
6.Stock Based Compensation Plans
In the first quarter of 2023, the Company updated its Long-Term Incentive Program (“LTIP”) to provide employees with an award of stock options and initial grants of restricted stock units (“RSUs”), and made an initial grant of performance share units ("PSUs") to members of the Company's Executive Leadership Team ("ELT"). In connection with this update, the awards are now granted in the first quarter of each year. Prior to 2023, the awards were granted in the second quarter. The Company recognizes the grant-date fair value for each of these awards, less estimated forfeitures, as compensation expense ratably over the vesting period. For employees and directors that meet retirement eligibility requirements, the expense related to share-based compensation is recognized on the date of grant as there is no future service period required for the awards to vest.
Stock Options
The following table provides a summary of option activity:
| | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | |
| | | | | | | Average | | | | |
| | | | Weighted | | | Remaining | | | | |
| | | | Average | | | Contractual | | | Aggregate | |
| | | | Exercise | | | Term | | | Intrinsic | |
| Options | | | Price (per share) | | | (in Years) | | | Value | |
Outstanding at December 31, 2023 | | 10.2 | | | $ | 68.77 | | | | | | | |
Granted | | 1.0 | | | | 100.43 | | | | | | | |
Exercised | | (1.7 | ) | | | 52.40 | | | | | | | |
Cancelled | | (0.1 | ) | | | 86.15 | | | | | | | |
Outstanding at September 30, 2024 | | 9.4 | | | $ | 75.03 | | | | 6.0 | | | $ | 281.4 | |
Exercisable at September 30, 2024 | | 6.0 | | | $ | 66.78 | | | | 4.6 | | | $ | 226.9 | |
The following table provides information regarding the intrinsic value of stock options exercised and stock compensation expense related to stock option awards:
| | | | | | | | | | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | | | September 30, | | | September 30, | |
| 2024 | | | 2023 | | | 2024 | | | 2023 | |
Intrinsic Value of Stock Options Exercised | $ | 5.3 | | | $ | 14.2 | | | $ | 86.6 | | | $ | 121.9 | |
Stock Compensation Expense Related to Stock Option Awards | $ | 4.3 | | | $ | 3.8 | | | $ | 24.8 | | | $ | 22.7 | |
Issued Stock Options | | 0.0 | | | | 0.0 | | | | 1.0 | | | | 1.0 | |
Weighted Average Fair Value of Stock Options issued (per share) | $ | 0.0 | | | $ | 0.0 | | | $ | 29.90 | | | $ | 24.05 | |
Fair Value of Stock Options Issued | $ | 0.0 | | | $ | 0.0 | | | $ | 31.1 | | | $ | 24.8 | |
The following table provides a summary of the assumptions used in the valuation of issued stock options:
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | |
| September 30, | | September 30, | | September 30, | | | September 30, | |
| 2024 | | 2023 | | 2024 | | | 2023 | |
Risk-free interest rate | N/A | | N/A | | | 4.2 | % | | | 4.0 | % |
Expected life in years | N/A | | N/A | | | 7.2 | | | | 7.3 | |
Expected volatility | N/A | | N/A | | | 22.3 | % | | | 22.4 | % |
Dividend yield | N/A | | N/A | | | 1.1 | % | | | 1.3 | % |
Restricted Stock Units
The Company granted employees 105,600 RSUs with a total fair value of $10.8 at a weighted average grant date fair value of $101.93 per RSU during the nine months ended September 30, 2024 and granted employees 119,570 RSUs with a total fair value of $10.3 at a weighted average grant date fair value of $86.18 per RSU during the nine months ended September 30, 2023. The annual RSU grants vest one-third on each of the first, second and third anniversaries of the grant date, subject to the recipient’s continued employment with the Company from the grant date through the applicable vesting date, and are settled with shares of the Company’s Common Stock within 60 days following the applicable vesting date.
Additionally, in connection with the Hero Acquisition (see Note 10), 854,882 shares of restricted stock were issued to certain individuals in October 2022 with a total fair value of $61.5. This restricted stock is recognized as compensation expense ratably over the vesting period if those individuals continue to be employed by the Company. The vesting requirements are satisfied at various dates over a three-year period from the date of the acquisition. 213,719 shares have vested as of September 30,2024 with an additional 213,719 vesting in October 2024. The restricted stock expense associated with the Hero Acquisition for the nine months ended September 30, 2024 and 2023 was $17.2 and $21.9, respectively, and is included in the Non-cash compensation expense caption in the condensed consolidated statement of cash flows.
Performance Stock Units
In the first quarter of 2024 and 2023, the Company granted PSUs to members of the Executive Leadership Team including the CEO, with an aggregate award equal to 19,960 and 19,650 PSUs, respectively. The PSUs were valued at a weighted average grant date fair value per PSU equal to $122.24 in 2024 and $110.95 in 2023 using a Monte Carlo model. The performance target is based on the Company's total shareholder return ("TSR") relative to a Company-selected peer group. The PSUs vest on the later of (i) the third anniversary of the grant date, and (ii) the date that the Board's Compensation & Human Capital Committee certifies the achievement of the applicable performance goals, in each case, subject to the recipient’s continued employment with the Company from the grant date through the vesting date. The number of shares that may be issued ranges from 0% to 200% based on relative TSR during the three-year performance period.
On October 28, 2021, the Board authorized the Company's share repurchase program, under which the Company may repurchase up to $1,000.0 in shares of Common Stock (the “2021 Share Repurchase Program”). The 2021 Share Repurchase Program does not have an expiration and replaced the 2017 Share Repurchase Program. The 2021 Share Repurchase Program did not modify the Company’s evergreen share repurchase program, authorized by the Board on January 29, 2014, under which the Company may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under its incentive plans.
As of September 30, 2024, there remains $658.9 of share repurchase availability under the 2021 Share Repurchase Program.
8.Fair Value Measurements
The following table presents the carrying amounts and estimated fair values of the Company’s other financial instruments at September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | |
| | | September 30, 2024 | | | December 31, 2023 | |
| Input | | Carrying | | | Fair | | | Carrying | | | Fair | |
| Level | | Amount | | | Value | | | Amount | | | Value | |
Financial Assets: | | | | | | | | | | | | | |
Cash equivalents | Level 1 | | $ | 571.9 | | | $ | 571.9 | | | $ | 217.7 | | | $ | 217.7 | |
Financial Liabilities: | | | | | | | | | | | | | |
Short-term borrowings | Level 2 | | | 3.4 | | | | 3.4 | | | | 3.9 | | | | 3.9 | |
Term loan due December 22, 2024 | Level 2 | | 0.0 | | | 0.0 | | | | 200.0 | | | | 200.0 | |
3.15% Senior notes due August 1, 2027 | Level 2 | | | 424.9 | | | | 415.1 | | | | 424.8 | | | | 406.9 | |
2.3% Senior notes due December 15, 2031 | Level 2 | | | 399.4 | | | | 348.8 | | | | 399.3 | | | | 338.6 | |
5.6% Senior notes due November 15, 2032 | Level 2 | | | 499.2 | | | | 537.4 | | | | 499.2 | | | | 535.6 | |
3.95% Senior notes due August 1, 2047 | Level 2 | | | 397.8 | | | | 333.8 | | | | 397.7 | | | | 333.7 | |
5.00% Senior notes due June 15, 2052 | Level 2 | | | 499.8 | | | | 491.3 | | | | 499.8 | | | | 498.1 | |
International long-term debt | Level 2 | | | 4.2 | | | | 4.2 | | | 0.0 | | | 0.0 | |
The Company recognizes transfers between input levels as of the actual date of the event. There were no transfers between input levels during the nine months ended September 30, 2024 and 2023.
Refer to Note 2 in the Form 10-K for a description of the methods and assumptions used to estimate the fair value of each class of financial instruments reflected in the condensed consolidated balance sheets.
The carrying amounts of Accounts Receivable, Accounts Payable, and Accrued and Other Liabilities, approximated estimated fair values as of September 30, 2024 and December 31, 2023.
9.Derivative Instruments and Risk Management
Changes in interest rates, foreign exchange rates, the price of the Company's Common Stock and commodity prices expose the Company to market risk. The Company manages these risks by the use of derivative instruments, such as cash flow and fair value hedges, diesel and commodity hedge contracts, equity derivatives and foreign exchange forward contracts. The Company does not use derivatives for trading or speculative purposes. Refer to Note 3 in the Form 10-K for a discussion of each of the Company’s derivative instruments in effect as of December 31, 2023.
The notional amount of a derivative instrument is the nominal or face amount used to calculate payments made on that instrument. Notional amounts are presented in the following table:
| | | | | | | | |
| | Notional | | | Notional | |
| | Amount | | | Amount | |
| | September 30, 2024 | | | December 31, 2023 | |
Derivatives designated as hedging instruments | | | | | | |
Foreign exchange contracts | | $ | 219.7 | | | $ | 228.9 | |
Diesel fuel contracts | | 1.9 gallons | | | 2.3 gallons | |
Commodities contracts | | 10.4 pounds | | | 59.0 pounds | |
Derivatives not designated as hedging instruments | | | | | | |
Foreign exchange contracts | | $ | 0.3 | | | $ | 0.0 | |
Equity derivatives | | $ | 24.5 | | | $ | 23.2 | |
The fair values and amount of gain (loss) recognized in income (loss) and Other Comprehensive Income (“OCI”) associated with the derivative instruments disclosed above did not have a material impact on the Company’s condensed consolidated financial statements during the three and nine months ended September 30, 2024.
On June 3, 2024, the Company acquired substantially all of the issued and outstanding shares of capital stock of Graphico, Inc. ("Graphico"), a Japan-based distributor focused on consumer goods primarily in the Japanese market (the “Graphico Acquisition”). The Company paid $19.9, net of cash acquired, at closing. The Company acquired the remaining minority shares for approximately $2.0 in July 2024. Graphico’s annual net sales for the year ended December 31, 2023 were approximately $38.0. The Graphico Acquisition was financed with cash on hand, is expected to contribute to greater expansion of our business in the Asia-Pacific (APAC) region, and is managed in the Consumer International segment.
The preliminary fair values of the net assets at acquisition are set forth as follows:
| | | |
Accounts receivable | $ | 3.5 | |
Inventory | | 11.3 | |
Other current assets | | 1.5 | |
Other long-term assets | | 5.8 | |
Customer relationship intangible asset | | 8.4 | |
Goodwill | | 2.8 | |
Accounts payable, accrued and other liabilities | | (6.9 | ) |
Long-term debt | | (4.4 | ) |
Deferred income taxes | | (2.1 | ) |
Cash purchase price (net of cash acquired) | $ | 19.9 | |
The customer relationship intangible asset was valued using a discounted cash flow model and has a useful life of 15 years. The goodwill is a result of expected synergies from combined operations of the acquired business and the Company. Pro forma results are not presented because the impact of the acquisition is not material to the Company’s consolidated financial results. The goodwill and other intangible assets associated with the Graphico Acquisition are not deductible for U.S. tax purposes.
On October 13, 2022, the Company acquired all of the issued and outstanding shares of capital stock of Hero Cosmetics, Inc. ("Hero"), the developer of the HERO® brand which includes the MIGHTY PATCH® acne treatment products (the “Hero Acquisition”). The Company paid $546.8, net of cash acquired, at closing, and deferred an additional cash payment of $8.0 for five years to satisfy certain indemnification obligations, if necessary. The Company also issued $61.5 of restricted stock which will be recognized as compensation expense as the vesting requirements for individuals who received the restricted stock, and will continue to be employed by the Company, are satisfied at various dates over a three-year period from the date of the acquisition. 213,719 shares have vested as of September 30,2024 with an additional 213,719 vesting in October 2024. Hero’s annual net sales for the year ended December 31, 2022 were approximately $179.0. The Hero Acquisition was financed with cash on hand and commercial paper borrowings and is managed in the Consumer Domestic segment. In the first quarter of 2023, the Company made a net cash payment of $3.5 primarily associated with final working capital adjustments.
The fair values of the net assets at acquisition are set forth as follows:
| | | |
Accounts receivable | $ | 19.5 | |
Inventory | | 25.4 | |
Other current assets | | 1.2 | |
Property, plant and equipment | | 0.4 | |
Trade name | | 400.0 | |
Other intangible assets | | 71.9 | |
Goodwill | | 156.1 | |
Accounts payable, accrued and other liabilities | | (1.1 | ) |
Deferred and other long-term liabilities | | (1.4 | ) |
Deferred income taxes | | (117.2 | ) |
Business acquisition liabilities - long-term | | (8.0 | ) |
Cash purchase price (net of cash acquired) | $ | 546.8 | |
The trade name and other intangible assets were valued using a discounted cash flow model. The trade name and other intangible assets recognized from the Hero Acquisition have useful lives which range from 10 - 20 years. The goodwill is a result of expected synergies from combined operations of the acquired business and the Company. Pro forma results are not presented because the impact of the acquisition is not material to the Company’s consolidated financial results. The goodwill and other intangible assets associated with the Hero Acquisition are not deductible for U.S. tax purposes.
11.Goodwill and Other Intangibles, Net
The Company has intangible assets of substantial value on its condensed consolidated balance sheet. These intangible assets are generally related to intangible assets with a definite life, indefinite-lived trade names and goodwill. The Company determines whether an intangible asset (other than goodwill) has a definite life based on multiple factors, including how long the Company intends to generate cash flows from the asset. These intangible assets are more fully explained in the following sections.
Intangible Assets With a Definite Life
The following table provides information related to the carrying value of intangible assets with a definite life:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | | | | December 31, 2023 | |
| Gross | | | | | | | | | | | | Amortization | | Gross | | | | | | | | | | |
| Carrying | | | Accumulated | | | | | | | | | Period | | Carrying | | | Accumulated | | | | | | | |
| Amount | | | Amortization | | | Impairments(1) | | | Net | | | (Years) | | Amount | | | Amortization | | | Impairments | | | Net | |
Intangible assets with a definite life: | | | | | | | | | | | | | | | | | | | | | | | | | |
Trade Names | $ | 1,384.5 | | | $ | (461.2 | ) | | $ | 0.0 | | | $ | 923.3 | | | 3-20 | | $ | 1,385.5 | | | $ | (403.5 | ) | | $ | 0.0 | | | $ | 982.0 | |
Customer Relationships | | 645.6 | | | | (395.2 | ) | | | (15.8 | ) | | | 234.6 | | | 15-20 | | | 644.9 | | | | (373.3 | ) | | | (3.5 | ) | | | 268.1 | |
Patents/Formulas | | 205.6 | | | | (124.2 | ) | | | 0.0 | | | | 81.4 | | | 4-20 | | | 208.3 | | | | (116.1 | ) | | | (1.9 | ) | | | 90.3 | |
Total | $ | 2,235.7 | | | $ | (980.6 | ) | | $ | (15.8 | ) | | $ | 1,239.3 | | | | | $ | 2,238.7 | | | $ | (892.9 | ) | | $ | (5.4 | ) | | $ | 1,340.4 | |
(1) Intangible asset impairment of VMS customer relationships. See Indefinite-Lived Trade Names disclosure for more information.
Intangible amortization expense was $30.7 and $31.1 for the third quarter of 2024 and 2023, respectively. Intangible amortization expense amounted to $92.2 and $93.3 for the first nine months of 2024 and 2023, respectively. The Company estimates that intangible amortization expense will be approximately $117.0 in 2024 and approximately $116.0 declining to $88.0 annually over the next five years.
Indefinite-Lived Trade Names
The following table presents the carrying value of indefinite-lived trade names:
| | | | | | | |
| September 30, | | | December 31, | |
| 2024 | | | 2023 | |
Gross Carrying Value Trade Names | $ | 1,961.7 | | | $ | 1,961.9 | |
VMS impairment | | 281.3 | | | | 0.0 | |
Net Carrying Value Trade Names | $ | 1,680.4 | | | $ | 1,961.9 | |
The Company’s indefinite-lived trade name impairment review is completed in the fourth quarter of each year.
Fair value of indefinite-lived trade names was estimated based on a “relief from royalty” or “excess earnings” discounted cash flow method, which contains numerous variables that are subject to change as business conditions change, and therefore could impact fair values in the future. The key assumptions used in determining fair value are sales growth, profitability margins, tax rates, discount rates and royalty rates. The Company determined that the fair value of all indefinite-lived trade names for each of the years in the three-year period ended December 31, 2023 exceeded their respective carrying values based upon the forecasted cash flows and profitability.
During the third quarter of 2024, the Company continued to experience a decline in market share and a deterioration in the financial performance of its Vitamins, Minerals and Supplements ("VMS") business, which includes the VITAFUSION and L'IL CRITTERS tradename, primarily due to significant product competition coming from new category entrants, including private label. The continued decline in profitability has caused management to reassess its long-term strategy and financial outlook of the business. The revised financial outlook reflects lower estimates of future sales growth and cash flows resulting in a triggering event in the third quarter. The triggering event requires the Company to review the carrying value of assets supporting the business. The assets supporting the VMS business include the VITAFUSION and L'IL CRITTERS indefinite-lived trade name, a definite-lived customer relationship intangible asset and PP&E specific to the VMS business.
The Company used an excess earnings discounted cash flow model to determine the fair value of the trade name. The assumptions used in the model require significant judgement in determining the expected future cash flows. The key assumptions utilized in the Company's impairment analysis included, but were not limited, net sales growth rates between -15.2% and 2.1%, EBITA margins in the low single digits, and a discount rate of 8.25%. Estimates are based on market conditions and management’s current expectation of the success of growth and profitability initiatives. The valuation resulted in a full impairment of the $281.3 tradename. The remaining carry value of the tradename at September 30, 2024 is $0.0.
The Company also evaluated its ability to recover the carrying value of long-lived assets supporting the VMS business by comparing the carrying amount of those assets to the future undiscounted cash flows over the estimated life of the identified primary asset. The result of this evaluation was that the cash flows would not be sufficient to recover the carrying value of the assets requiring the Company to compare the carrying value of those assets to their fair value. The Company used an excess earnings discounted cash flow model to determine the estimated fair value of the long-lived assets. The key assumptions utilized in the Company's impairment analysis included, but were not limited, net sales growth rates between -15.2% and 2.1%, EBITA margins in the low single digits, and a discount rate of 8.25%. The valuation resulted in a fair value of the long-lived assets that is below their carry value requiring a pre-tax impairment charge of $75.8. The impairment charge was allocated $60.0 to the PP&E of the VMS business and $15.8 to the remaining customer relationship intangible asset. The remaining carrying values of the PP&E and the customer relationship intangible asset specific to the VMS business at September 30, 2024 are $140.0 and $0.0, respectively.
A summary of the VMS intangible and fixed asset impairment charges are as follows:
| | | |
| September 30, | |
| 2024 | |
Trade Name | $ | 281.3 | |
Customer Relationship Intangible Asset | | 15.8 | |
PP&E | | 60.0 | |
Total VMS impairment charges | $ | 357.1 | |
The Company’s global WATERPIK business has continued to experience a significant decline in customer demand for many of its products, primarily due to lower consumer spending for discretionary products from inflation and a growing number of water flosser consumers switching to more value-branded products. As a result, the WATERPIK business has experienced declining sales and profits resulting in a reduction in expected future cash flows which have eroded a substantial portion of the excess between the fair and carrying value of the trade name. This indefinite-lived intangible asset may be susceptible to impairment and a continued decline in fair value could trigger a future impairment charge of the WATERPIK trade name. The carrying value of the WATERPIK trade name was $644.7 and fair value represented 109% of the carrying value as of October 1, 2023 (the date of the Company's last annual impairment test). The key assumptions used in the projections from the Company’s October 1, 2023 impairment analysis include a discount rate of 8.8%, revenue growth rates between 0% and 4.5% and EBITA margins between 19% and 26%. These assumptions were based on current market conditions as of the date of the impairment analysis, recent trends and management’s expectation of the success of initiatives to lower costs and to develop lower-cost water flosser alternatives as well as improvement in the supply chain. While management has implemented strategies to address the risk, significant changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate fair value. Due to the results of the Company's annual impairment test of the WATERPIK trade name, the Company monitors the performance of this business on at least a quarterly basis. Based on that review, the Company's expectations regarding the profitability of the global WATERPIK business has not substantially changed since the Company's last impairment test.
Goodwill
The carrying amount of goodwill is as follows:
| | | | | | | | | | | | | | | |
| Consumer | | | Consumer | | | Specialty | | | | |
| Domestic | | | International | | | Products | | | Total | |
Balance at December 31, 2023 | $ | 2,061.1 | | | $ | 234.4 | | | $ | 136.0 | | | $ | 2,431.5 | |
Graphico acquired goodwill | | 0.0 | | | $ | 2.8 | | | | 0.0 | | | | 2.8 | |
Passport divestiture | | 0.0 | | | | 0.0 | | | | (1.0 | ) | | | (1.0 | ) |
Balance at September 30, 2024 | $ | 2,061.1 | | | $ | 237.2 | | | $ | 135.0 | | | $ | 2,433.3 | |
The result of the Company’s annual goodwill impairment test, performed in the second quarter of each year, determined that the estimated fair value substantially exceeded the carrying values of all reporting units. The determination of fair value contains numerous variables that are subject to change as business conditions change and therefore could impact fair value in the future.
The Company leases certain manufacturing facilities, warehouses, office space, railcars and equipment. Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. All recorded leases are classified as operating leases and lease expense is recognized on a straight-line basis over the lease term. For leases beginning in 2019, lease components (base rental costs) are accounted for separately from the nonlease components (e.g., common-area maintenance costs). For leases that do not provide an implicit rate, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
A summary of the Company’s lease information is as follows:
| | | | | | | |
| | September 30, | | December 31, | |
| Classification | 2024 | | 2023 | |
Assets | | | | | |
Right of use assets | Other Assets | $ | 182.8 | | $ | 186.0 | |
| | | | | |
Liabilities | | | | | |
Current lease liabilities | Accrued and Other Liabilities | $ | 30.4 | | $ | 24.7 | |
Long-term lease liabilities | Deferred and Other Long-term Liabilities | | 170.9 | | | 174.9 | |
Total lease liabilities | | $ | 201.3 | | $ | 199.6 | |
| | | | | |
Other information | | | | | |
Weighted-average remaining lease term (years) | | | 7.7 | | | 8.1 | |
Weighted-average discount rate | | | 4.6 | % | | 4.5 | % |
| | | | | | | | | | | | | | | |
| Three Months | | | Three Months | | | Nine Months | | | Nine Months | |
| Ended | | | Ended | | | Ended | | | Ended | |
| September 30, 2024 | | | September 30, 2023 | | | September 30, 2024 | | | September 30, 2023 | |
Statement of (Loss) Income | | | | | | | | | | | |
Lease cost(1) | $ | 10.0 | | | $ | 7.9 | | | $ | 29.8 | | | $ | 23.5 | |
| | | | | | | | | | | |
Other information | | | | | | | | | | | |
Leased assets obtained in exchange for new lease liabilities net of modifications(2) | $ | 1.2 | | | $ | 2.2 | | | $ | 19.6 | | | $ | 7.3 | |
Cash paid for amounts included in the measurement of lease liabilities | $ | 8.7 | | | $ | 7.6 | | | $ | 25.0 | | | $ | 23.1 | |
(1)Lease expense is included in cost of sales or SG&A expenses based on the nature of the leased item. Short-term lease expense is excluded from this amount and is not material. The Company also has certain variable leases which are not material. The non-cash component of lease expense for the first nine months of 2024 and 2023 was $22.8 and $17.9, respectively, and is included in the Amortization caption in the condensed consolidated statement of cash flows.
(2)In January 2024, the Company expanded space at one of its leased manufacturing facilities. This resulted in an increase to the Company’s right of use assets and corresponding lease liabilities of approximately $15.4 recorded in the first quarter of 2024.
The Company’s minimum annual rentals including reasonably assured renewal options under lease agreements are as follows:
| | | | |
| | Operating | |
| | Leases | |
2024 | | $ | 9.8 | |
2025 | | | 38.4 | |
2026 | | | 30.0 | |
2027 | | | 28.1 | |
2028 | | | 25.5 | |
2029 and thereafter | | | 109.4 | |
Total future minimum lease commitments | | | 241.2 | |
Less: Imputed interest | | | (39.9 | ) |
Present value of lease liabilities | | $ | 201.3 | |
13.Accounts Payable, Accrued and Other Liabilities
Accounts payable, accrued and other liabilities consist of the following:
| | | | | | | |
| September 30, | | | December 31, | |
| 2024 | | | 2023 | |
Accounts payable | $ | 705.9 | | | $ | 630.6 | |
Accrued marketing and promotion costs | | 249.5 | | | | 276.7 | |
Accrued wages and related benefit costs | | 116.5 | | | | 152.3 | |
Other accrued current liabilities | | 163.6 | | | | 151.4 | |
Total | $ | 1,235.5 | | | $ | 1,211.0 | |
In 2015, the Company initiated a Supply Chain Finance program (“SCF Program”). Under the SCF Program, qualifying suppliers may elect to sell their receivables from the Company for early payment. Participating suppliers negotiate their receivables sales arrangements directly with a third party. The Company is not party to those agreements and do not have an economic interest in the suppliers' decisions to sell their receivables and has not been required to pledge any assets as security nor to provide any guarantee to third-party finance providers or intermediaries. The SCF Program may allow suppliers to obtain more favorable terms than they could secure on their own. The terms of the Company's payment obligations are not impacted by a supplier’s participation in the SCF Program. The Company's payment terms with suppliers are consistent between suppliers that elect to participate in the SCF Program and those that do not participate. As a result, the program does not have an impact to the Company's average days of payables outstanding.
As of September 30, 2024, the obligations outstanding related to the SCF program amount to $86.5, recorded within Accounts Payable in the condensed consolidated balance sheets and $292.3 payments included in operating activities within the Company's Condensed Consolidated Statements of Cash Flows.
14.Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consist of the following:
| | | | | | | |
| September 30, | | | December 31, | |
| 2024 | | | 2023 | |
Short-term borrowings | | | | | |
Various debt due to international banks | | 3.4 | | | | 3.9 | |
Total short-term borrowings | $ | 3.4 | | | $ | 3.9 | |
| | | | | |
Long-term debt | | | | | |
Term loan due December 22, 2024 | $ | 0.0 | | | $ | 200.0 | |
3.15% Senior notes due August 1, 2027 | | 425.0 | | | | 425.0 | |
Less: Discount | | (0.1 | ) | | | (0.2 | ) |
2.3% Senior notes due December 15, 2031 | | 400.0 | | | | 400.0 | |
Less: Discount | | (0.6 | ) | | | (0.7 | ) |
5.6% Senior notes due November 15, 2032 | | 500.0 | | | | 500.0 | |
Less: Discount | | (0.8 | ) | | | (0.8 | ) |
3.95% Senior notes due August 1, 2047 | | 400.0 | | | | 400.0 | |
Less: Discount | | (2.2 | ) | | | (2.3 | ) |
5.00% Senior notes due June 15, 2052 | | 500.0 | | | | 500.0 | |
Less: Discount | | (0.2 | ) | | | (0.2 | ) |
Various debt due to international banks | | 4.2 | | | | 0.0 | |
Debt issuance costs, net | | (17.1 | ) | | | (18.7 | ) |
Total long-term debt | | 2,208.2 | | | | 2,402.1 | |
Less: Current maturities | | 0.0 | | | | (199.9 | ) |
Net long-term debt | $ | 2,208.2 | | | $ | 2,202.2 | |
15.Accumulated Other Comprehensive (Loss) Income
The components of changes in accumulated other comprehensive (loss) income are as follows:
| | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | |
| Foreign | | | Defined | | | | | | Other | |
| Currency | | | Benefit | | | Derivative | | | Comprehensive | |
| Adjustments | | | Plans | | | Agreements | | | Income (Loss) | |
Balance at December 31, 2022 | $ | (46.4 | ) | | $ | 1.7 | | | $ | 15.4 | | | $ | (29.3 | ) |
Other comprehensive (loss) income before reclassifications | | (0.7 | ) | | | 3.8 | | | | 2.2 | | | | 5.3 | |
Amounts reclassified to condensed consolidated statement of
(loss) income (a) (b) | | 0.0 | | | | 0.0 | | | | (5.0 | ) | | | (5.0 | ) |
Tax benefit (expense) | | 0.0 | | | | (1.0 | ) | | | 0.6 | | | | (0.4 | ) |
Other comprehensive (loss) income | | (0.7 | ) | | | 2.8 | | | | (2.2 | ) | | | (0.1 | ) |
Balance at September 30, 2023 | $ | (47.1 | ) | | $ | 4.5 | | | $ | 13.2 | | | $ | (29.4 | ) |
| | | | | | | | | | | |
Balance at December 31, 2023 | $ | (37.8 | ) | | $ | 4.6 | | | $ | 6.0 | | | $ | (27.2 | ) |
Other comprehensive income (loss) before reclassifications | | 5.3 | | | | (0.2 | ) | | | 7.3 | | | | 12.4 | |
Amounts reclassified to condensed consolidated statement of
(loss) income (a) (b) | | 0.0 | | | | 0.0 | | | | (1.6 | ) | | | (1.6 | ) |
Tax benefit (expense) | | 0.0 | | | | 0.0 | | | | (1.8 | ) | | | (1.8 | ) |
Other comprehensive (loss) income | | 5.3 | | | | (0.2 | ) | | | 3.9 | | | | 9.0 | |
Balance at September 30, 2024 | $ | (32.5 | ) | | $ | 4.4 | | | $ | 9.9 | | | $ | (18.2 | ) |
(a)Amounts reclassified to cost of sales, selling, general and administrative expenses or interest expense.
(b)The Company reclassified a gain of $0.6 and a gain of $1.3 to the condensed consolidated statements of (loss) income during the three months ended September 30, 2024 and 2023, respectively.
16. Commitments, Contingencies and Guarantees
Commitments
a. The Company has a partnership with a supplier of raw materials that mines and processes sodium-based mineral deposits. The Company purchases the majority of its sodium-based raw material requirements from the partnership. The partnership agreement terminates upon two years’ written notice by either partner. Under the partnership agreement, the Company has an annual commitment to purchase 240,000 tons of sodium-based raw materials at the prevailing market price. The Company is not engaged in any other material transactions with the partnership or the partner supplier.
b. As of September 30, 2024, the Company had commitments of approximately $408.6. These commitments include the purchase of raw materials, packaging supplies and services from its vendors at market prices to enable the Company to respond quickly to changes in customer orders or requirements, as well as costs associated with licensing and promotion agreements.
c. As of September 30, 2024, the Company had various guarantees and letters of credit totaling $6.0.
d. In connection with the December 1, 2020 acquisition of the ZICAM® brand (the "Zicam Acquisition"), the Company deferred an additional cash payment of $20.0 related to certain indemnifications provided by the seller. The additional amount, to the extent not used in satisfaction of such indemnity obligations, is payable five years from the closing.
In connection with the December 24, 2021 TheraBreath Acquisition, the Company deferred an additional cash payment of $14.0 related to certain indemnity obligations provided by the seller. The additional amount, to the extent not used or withheld in satisfaction of such indemnity obligations, is payable in installments between two and four years from the closing, with the first installment payment of $2.0 paid in January 2024, an additional $7.0 to be paid in December 2024 and the remaining $5.0 to be paid in December 2025.
In connection with the October 13, 2022 Hero Acquisition, the Company deferred an additional cash payment of $8.0 to satisfy certain indemnification obligations. The additional amount, to the extent not used in satisfaction of such indemnity obligations, is payable five years from the closing.
Legal proceedings
e. In addition in conjunction with the Company’s acquisition and divestiture activities, the Company entered into select guarantees and indemnifications of performance with respect to the fulfillment of the Company’s commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. Representations and warranties that survive the closing date generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, the Company also routinely enters into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on the Company’s financial condition, results of operations and cash flows.
f. In addition to the matters described above, from time to time in the ordinary course of its business the Company is the subject of, or party to, various pending or threatened legal, regulatory or governmental actions or other proceedings, including, without limitation, those relating to, intellectual property, commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are generally subject to considerable uncertainty and their outcomes, and any related damages, may not be reasonably predictable or estimable. Any such proceedings could result in a material adverse outcome negatively impacting the Company’s business, financial condition, results of operations or cash flows.
17.Related Party Transactions
The following summarizes the balances and transactions between the Company and Armand Products Company (“Armand”) and the ArmaKleen Company (“ArmaKleen”). The Company held a 50% ownership interest as of September 30, 2024 in each:
| | | | | | | | | | | | | | | |
| Armand | | | ArmaKleen(2) | |
| Nine Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | | | September 30, | | | September 30, | |
| 2024 | | | 2023 | | | 2024 | | | 2023 | |
Purchases by the Company | $ | 10.6 | | | $ | 11.7 | | | $ | 0.0 | | | $ | 0.0 | |
Sales by the Company | $ | 0.0 | | | $ | 0.0 | | | $ | 1.0 | | | $ | 1.1 | |
Outstanding Accounts Receivable | $ | 0.5 | | | $ | 0.6 | | | $ | 0.7 | | | $ | 0.7 | |
Outstanding Accounts Payable | $ | 0.9 | | | $ | 1.3 | | | $ | 0.0 | | | $ | 0.0 | |
Administration & Management Oversight Services (1) | $ | 1.7 | | | $ | 1.7 | | | $ | 1.6 | | | $ | 1.6 | |
(1)Billed by the Company and recorded as a reduction of SG&A expenses.
(2)In October 2024, the Company sold its 50% interest in Armakleen to an unrelated third party. The transaction is not material to the Company's results of operations or cash flows.
Segment Information
The Company operates three reportable segments: Consumer Domestic, Consumer International and Specialty Products Division. These segments are determined based on differences in the nature of products and organizational structure. The Company also has a Corporate segment.
Segment revenues are derived from the sale of the following products:
| | | | |
Segment | | | Products | |
Consumer Domestic | | Household and personal care products |
Consumer International | | Primarily personal care products |
SPD | | Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of September 30, 2024, the Company held 50% ownership interests in each of Armand and ArmaKleen, respectively. The Company’s equity in earnings of Armand and ArmaKleen, totaling $3.0 and $1.7 for the three months ended September 30, 2024 and 2023, respectively, and $7.2 and $8.1 for the nine months ended September 30, 2024 and 2023, respectively, are included in the Corporate segment. In October 2024, the Company sold its 50% interest in Armakleen to an unrelated third party. The transaction is not material to the Company’s results of operations or cash flows.
Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth in the table below.
Segment net sales and income (loss) before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | |
| Consumer | | | Consumer | | | | | | | | | | |
| Domestic | | | International | | | SPD | | | Corporate(3) | | | Total | |
Net Sales(1) | | | | | | | | | | | | | | |
Third Quarter 2024 | $ | 1,170.8 | | | $ | 267.7 | | | $ | 72.1 | | | $ | 0.0 | | | $ | 1,510.6 | |
Third Quarter 2023 | | 1,133.1 | | | | 244.4 | | | | 78.4 | | | | 0.0 | | | | 1,455.9 | |
First Nine Months of 2024 | $ | 3,506.6 | | | $ | 786.4 | | | $ | 232.1 | | | $ | 0.0 | | | $ | 4,525.1 | |
First Nine Months of 2023 | | 3,378.2 | | | | 716.9 | | | | 244.8 | | | | 0.0 | | | | 4,339.9 | |
| | | | | | | | | | | | | | |
(Loss) Income before Income Taxes(2) | | | | | | | | | | | | | | |
Third Quarter 2024(4) | $ | (107.1 | ) | | $ | (4.7 | ) | | $ | 7.4 | | | $ | 3.0 | | | $ | (101.4 | ) |
Third Quarter 2023 | | 203.4 | | | | 22.7 | | | | 6.2 | | | | 1.7 | | | | 234.0 | |
First Nine Months of 2024(4) | $ | 405.3 | | | $ | 61.2 | | | $ | 29.5 | | | $ | 7.2 | | | $ | 503.2 | |
First Nine Months of 2023 | | 662.8 | | | | 79.1 | | | | 22.2 | | | | 8.1 | | | | 772.2 | |
(1)Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $7.0 and $4.7 for the three months ended September 30, 2024 and September 30, 2023, respectively, and were $19.6 and $11.7 for the nine months ended September 30, 2024 and September 30, 2023, respectively.
(2)In determining income (loss) before income taxes, interest expense, investment earnings and certain aspects of other income and expense were allocated among segments based upon each segment’s relative income (loss) from operations.
(3)The Corporate segment consists of equity in earnings of affiliates from Armand and ArmaKleen for the three and nine months ended September 30, 2024 and September 30, 2023. The Company's 50% interest in Armakleen was sold to an unrelated third party in October of 2024. The transaction is not material to the Company’s results of operations or cash flows.
(4)In the third quarter and first nine months of 2024, the results include the VMS non-cash intangible and PP&E impairment charges of $357.1 in SG&A expenses, of which $327.4 was recorded in the Consumer Domestic segment and $29.7 was recorded in the Consumer International segment.
Product line revenues from external customers are as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | | | September 30, | | | September 30, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
Household Products | | $ | 637.4 | | | $ | 636.2 | | | $ | 1,929.5 | | | $ | 1,857.0 | |
Personal Care Products | | | 533.4 | | | | 496.9 | | | | 1,577.1 | | | | 1,521.2 | |
Total Consumer Domestic | | | 1,170.8 | | | | 1,133.1 | | | | 3,506.6 | | | | 3,378.2 | |
Total Consumer International | | | 267.7 | | | | 244.4 | | | | 786.4 | | | | 716.9 | |
Total SPD | | | 72.1 | | | | 78.4 | | | | 232.1 | | | | 244.8 | |
Total Consolidated Net Sales | | $ | 1,510.6 | | | $ | 1,455.9 | | | $ | 4,525.1 | | | $ | 4,339.9 | |
Household Products include laundry, deodorizing and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products, cold and remedy products, and gummy dietary supplements.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
(In millions, except per share data)
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 14, 2024, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q.
Overview
We develop, manufacture and market a broad range of consumer household and personal care products and specialty products focused on animal and food production, chemicals and cleaners. Our well-recognized brands include ARM & HAMMER® baking soda, cat litter, laundry detergent, carpet deodorizer and other baking soda-based products; OXICLEAN® stain removers, cleaning solutions, laundry detergents and bleach alternatives; BATISTE® dry shampoo; WATERPIK® water flossers and showerheads; THERABREATH® oral care products; HERO® acne treatment products; VITAFUSION® and L’IL CRITTERS® gummy dietary supplements for adults and children, respectively; TROJAN® condoms, lubricants and vibrators; SPINBRUSH® battery-operated toothbrushes; FIRST RESPONSE® home pregnancy and ovulation test kits; NAIR® depilatories; ORAJEL® oral analgesic; XTRA® laundry detergent; and ZICAM® cold shortening and relief products. Seven of those brands are designated as "power brands" because they compete in large categories, and we believe they have the potential for significant global expansion. Those seven brands are ARM & HAMMER®; OXICLEAN®; BATISTE®; WATERPIK®; THERABREATH®; HERO® and VITAFUSION® and L’IL CRITTERS®; and represent approximately 70% of our net sales and profits.
We sell our consumer products through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar and other discount stores, pet and other specialty stores and websites and other e-commerce channels, all of which sell our products to consumers. We sell our specialty products to industrial customers, livestock producers and distributors.
We operate in three principal segments: Consumer Domestic, Consumer International, and our Specialty Products Division (“SPD”).
Recent Developments
In October 2021, members of the Organisation for Economic Co-operation and Development (“OECD”) agreed to a global minimum tax rate of 15%. In December 2021, OECD published its model rules on the agreed minimum tax known as the Global Anti-Base Erosion (“GloBE”) or Pillar Two rules. The Pillar Two rules are designed to be implemented into the domestic law of each jurisdiction to ensure large multinational enterprise groups are subject to a minimum effective tax rate of 15% in each jurisdiction where they operate. In December 2022, the European Union (“EU”) Member States formally adopted the EU’s Pillar Two Directive. January 1, 2024 marked the official effective date of the 15% global corporate minimum tax imposed by the EU's Pillar Two Directive. We are monitoring developments and evaluating the impacts of the Pillar Two rules on our tax rate. We have evaluated the impact of the Pillar Two rules based on current legislation and available guidance, and do not anticipate a material impact to the Company.
During the first quarter of 2024, we exited the MEGALAC supplement portion of our Animal Nutrition business within our SPD segment. Net sales for the three months ended September 30, 2024 and 2023 were $0.0 and $8.1, respectively. Net sales for the nine months ended September 30, 2024 and 2023 were $7.6 and $29.7, respectively.
On June 3, 2024, we acquired substantially all of the issued and outstanding shares of capital stock of Graphico, Inc. ("Graphico"), a Japan-based distributor focused on consumer goods primarily in the Japanese market (the “Graphico Acquisition”). We paid $19.9, net of cash acquired, at closing. We acquired the remaining minority shares for approximately $2.0 in July 2024. Graphico’s annual net sales for the year ended December 31, 2023 were approximately $38.0. The Graphico Acquisition was financed with cash on hand, is expected to contribute to greater expansion of our business in the Asia-Pacific (APAC) region, and is managed in the Consumer International segment.
During the second quarter of 2024, we sold our Passport food safety business, Passport Food Safety Solutions, Inc., with assets of $7.0, inclusive of intangible assets of $2.7 and corresponding goodwill of $1.0, for cash proceeds of $6.6 and $0.5 held in escrow
for a gain of $0.1. Net sales for the three months ended September 30, 2024 and 2023 were $0.0 and $3.3, respectively. Net sales for the nine months ended September 30, 2024 and 2023 were $6.4 and $9.2, respectively.
During the second quarter of 2024, we received a favorable tariff ruling from the U.S. government associated with certain products imported from China, which resulted in $37.6 of cash refunds (pre tax) in the nine months ended September 30,2024. The refunds resulted in a $3.2 and $29.3 reduction of Cost of goods sold during the three and nine months ended September 30, 2024 and an increase in Interest income from interest of $4.6 during both the three and nine months ended September 30, 2024.
During the third quarter of 2024, the Company continued to experience a decline in market share and a deterioration in the financial performance for its Vitamins, Minerals and Supplements ("VMS") business, which includes the VITAFUSION and L'IL CRITTERS tradename, primarily due to significant product competition coming from new category entrants, including private label. The continued decline in profitability has caused management to reassess its long-term strategy and financial outlook of the business. The revised financial outlook reflects lower estimates of future sales growth and cash flows resulting in a triggering event in the third quarter. The triggering event requires the Company to review the carrying value of assets supporting the business resulting in impairment charges of $357.1 in the quarter ended September 30, 2024.
The Company’s 50% interest in The Armakleen Company was sold to an unrelated third party in October of 2024. The transaction is not material to the Company’s results of operations or cash flows.
Other
For additional discussion, please refer to Item 1A, Risk Factors, and Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K.
Results of Operations
Consolidated results
| | | | | | | | | |
| Three Months Ended | | | Change vs. | | Three Months Ended | |
| September 30, 2024 | | | Prior Year | | September 30, 2023 | |
Net Sales | $ | 1,510.6 | | | 3.8% | | $ | 1,455.9 | |
Gross Profit | $ | 683.1 | | | 5.7% | | $ | 646.3 | |
Gross Margin | | 45.2 | % | | 80 basis points | | | 44.4 | % |
Marketing Expenses | $ | 185.8 | | | 10.7% | | $ | 167.8 | |
Percent of Net Sales | | 12.3 | % | | 80 basis points | | | 11.5 | % |
Selling, General & Administrative Expenses | $ | 231.7 | | | 4.0% | | $ | 222.7 | |
Percent of Net Sales | | 15.3 | % | | 0 basis points | | | 15.3 | % |
Tradename and other asset impairments | $ | 357.1 | | | 100.0% | | | 0.0 | |
Percent of Net Sales | | 23.7 | % | | 2,370 basis points | | | 0.0 | % |
(Loss) Income from Operations | $ | (91.5 | ) | | (135.8%) | | $ | 255.8 | |
Operating Margin | | (6.1 | %) | | -2,370 basis points | | | 17.6 | % |
Net (loss)/income per share - Diluted | $ | (0.31 | ) | | (143.7%) | | $ | 0.71 | |
| | | | | | | |
| Nine Months Ended | | | Change vs. | | Nine Months Ended | |
| September 30, 2024 | | | Prior Year | | September 30, 2023 | |
Net Sales | $ | 4,525.1 | | | 4.3% | | $ | 4,339.9 | |
Gross Profit | $ | 2,082.2 | | | 9.2% | | $ | 1,907.2 | |
Gross Margin | | 46.0 | % | | 210 basis points | | | 43.9 | % |
Marketing Expenses | $ | 490.2 | | | 16.1% | | $ | 422.3 | |
Percent of Net Sales | | 10.8 | % | | 110 basis points | | | 9.7 | % |
Selling, General & Administrative Expenses | $ | 684.5 | | | 6.4% | | $ | 643.6 | |
Percent of Net Sales | | 15.1 | % | | 30 basis points | | | 14.8 | % |
Tradename and other asset impairments | $ | 357.1 | | | 100.0% | | | 0.0 | |
Percent of Net Sales | | 7.9 | % | | 790 basis points | | | 0.0 | % |
Income from Operations | $ | 550.4 | | | (34.6%) | | $ | 841.3 | |
Operating Margin | | 12.2 | % | | -720 basis points | | | 19.4 | % |
Net income per share - Diluted | $ | 1.61 | | | (33.7%) | | $ | 2.43 | |
Net Sales
Net sales for the quarter ended September 30, 2024 were $1,510.6, an increase of $54.7 or 3.8% as compared to the same period in 2023. Net sales for the nine months ended September 30, 2024 were $4,525.1, an increase of $185.2 or 4.3% over the comparable nine month period of 2023. The components of the net sales increase are as follows:
| | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | |
Net Sales - Consolidated | | 2024 | | | 2024 | |
Product volumes sold(1) | | | 3.1 | % | | | 3.4 | % |
Pricing/Product mix(2) | | | 1.2 | % | | | 1.3 | % |
Foreign exchange rate fluctuations | | | (0.1 | %) | | 0.0% | |
Exit of product lines (net of acquisition)(3) | | | (0.4 | %) | | | (0.4 | %) |
Net Sales increase | | | 3.8 | % | | | 4.3 | % |
(1)For both the three and nine months ended September 30, 2024, the volume change reflects increased product unit sales in all three segments.
(2)For both the three and nine months ended September 30, 2024, price/mix was favorable in all three segments.
(3)In the first quarter of 2024, we exited the MEGALAC supplement portion of the SPD Animal Nutrition business. In the second quarter of 2024 we acquired substantially all of Graphico and sold the Passport food safety business.
Gross Profit / Gross Margin
Our gross profit was $683.1 for the three months ended September 30, 2024, a $36.8 increase as compared to the same period in 2023. Gross margin increased 80 basis points (“bps”) in the third quarter of 2024 compared to the same period in 2023, due to the positive impact of productivity programs of 140 bps, favorable price/volume/mix of 130 bps, a favorable tariff ruling of 20 bps, and benefits from the Graphico Acquisition of 10 bps, offset by the impact of higher manufacturing costs, including labor and commodities, of 220 bps. Gross profit was $2,082.2 for the nine months ended September 30, 2024, a $175.0 increase compared to the same period in 2023. Gross margin increased 210 bps in the first nine months of 2024 compared to the same period in 2023, due to the impact of productivity programs of 130 bps, favorable price/volume/mix of 120 bps, and a favorable tariff ruling of 70 bps, offset by the impact of higher manufacturing costs including labor and higher commodities of 100 bps and unfavorable foreign exchange of 10 bps.
Operating Expenses
Marketing expenses for the three months ended September 30, 2024 were $185.8, an increase of $18.0 or 10.7% as compared to the same period in 2023. Marketing expenses as a percentage of net sales in the third quarter of 2024 increased by 80 bps to 12.3% as compared to 11.5% in the same period in 2023 due to 120 bps on higher expense primarily from increased marketing spend to support new product introductions, offset by 40 bps of leverage on higher net sales. Marketing expenses for the nine months ended September 30, 2024 were $490.2, an increase of $67.9 or 16.1% as compared to the same period in 2023. Marketing expenses as a percentage of net sales for the first nine months of 2024 increased by 110 bps to 10.8% as compared to 9.7% in the same period in 2023 due to 150 bps on higher expense, primarily from increased marketing spend to support new product introductions, offset by 40 bps of leverage on higher net sales.
SG&A expenses were $231.7 in the third quarter of 2024, an increase of $9.0 or 4.0% as compared to the same period in 2023. SG&A as a percentage of net sales was 15.3% in the third quarter of 2024 and 2023. SG&A expenses were higher by 60 bps, primarily due to growth investments in our international division, Research and Development ("R&D") and Information Technology ("IT"), and the Graphico acquisition, offset by 60 bps of leverage associated with higher sales. SG&A expenses for the first nine months of 2024 were $684.5, an increase of $40.9 or 6.4% as compared to the same period in 2023. SG&A as a percentage of net sales increased 30 bps to 15.1% in the first nine months of 2024 compared to 14.8% in 2023 due to 90 bps on higher expenses, primarily due to growth investments in our international division, R&D and IT, offset by 60 bps of leverage associated with higher sales.
Nonoperating Expenses
Tradename and other asset impairment charges were $357.1 million for the three and nine months ended September 30, 2024 related to non-cash charges to adjust the carrying value of intangible assets and property, plant, and equipment related to the VMS business. The impairment was due to a continued decline in market share and a deterioration in the financial performance for the VMS business, which includes the VITAFUSION and L'IL CRITTERS tradename, primarily due to significant product competition coming from new category entrants, including private label. See Note 11, “Goodwill and Other Intangibles, Net” to the Condensed Consolidated Financial Statements included herein for additional information.
Interest income for the three and nine months ended September 30, 2024 increased $6.1 and $10.5 to $10.6 and $17.7, respectively, as compared to the same periods in 2023, due to higher interest income primarily associated with the favorable Waterpik tariff ruling and higher interest rates.
Interest expense for the three and nine months ended September 30, 2024 decreased $3.8 and $12.3 to $23.4 and $71.6, respectively, as compared to the same periods in 2023, primarily due to lower average outstanding debt.
Other income (expense), net was nominal for the three and nine months ended September 30, 2024 and 2023.
Income Taxes
The effective tax rate for the three months ended September 30, 2024 was a benefit of 25.9% as compared to an expense of 24.1% in the same period in 2023. The effective tax benefit of 25.9% for the three months ended September 30, 2024 was impacted by the non-cash VMS impairment charge. Excluding the VMS impairment charge, the effective tax rate for the three months ended September 30, 2024 was 23.8%.
The effective tax rate for the nine months ended September 30, 2024 was 21.3%, compared to 22.1% in the same period in 2023. The effective tax rate for the nine months ended September 30, 2024 was impacted by the non-cash VMS impairment charge. Excluding the VMS impairment charge, the effective tax rate for the nine months ended September 30, 2024 was 22.6% which was higher than the 2023 rate due to a lower benefit from stock option exercises.
Segment results
We operate three reportable segments: Consumer Domestic, Consumer International and SPD. These segments are determined based on differences in the nature of products and organizational structure. We also have a Corporate segment.
| | | | |
Segment | | | Products | |
Consumer Domestic | | Household and personal care products |
Consumer International | | Primarily personal care products |
SPD | | Specialty chemical products |
The Corporate segment income consists of equity in earnings of affiliates. As of September 30, 2024, we held 50% ownership interests in each of Armand and ArmaKleen, respectively. Our equity in earnings of Armand and ArmaKleen, totaling $3.0 and $1.7 for the three months ended September 30, 2024 and 2023, respectively, and $7.2 and $8.1 for the nine months ended September 30, 2024 and 2023, respectively, are included in the Corporate segment. Certain subsidiaries that are included in the Consumer International segment manufacture and sell personal care products to the Consumer Domestic segment. These sales are eliminated from the Consumer International segment results set forth below.
Segment net sales and income (loss) before income taxes for the three and nine months ended September 30, 2024 and September 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | |
| Consumer | | | Consumer | | | | | | | | | | |
| Domestic | | | International | | | SPD | | | Corporate(3) | | | Total | |
Net Sales(1) | | | | | | | | | | | | | | |
Third Quarter 2024 | $ | 1,170.8 | | | $ | 267.7 | | | $ | 72.1 | | | $ | 0.0 | | | $ | 1,510.6 | |
Third Quarter 2023 | | 1,133.1 | | | | 244.4 | | | | 78.4 | | | | 0.0 | | | | 1,455.9 | |
First Nine Months of 2024 | $ | 3,506.6 | | | $ | 786.4 | | | $ | 232.1 | | | $ | 0.0 | | | $ | 4,525.1 | |
First Nine Months of 2023 | | 3,378.2 | | | | 716.9 | | | | 244.8 | | | | 0.0 | | | | 4,339.9 | |
| | | | | | | | | | | | | | |
(Loss) Income before Income Taxes(2) | | | | | | | | | | | | | | |
Third Quarter 2024(4) | $ | (107.1 | ) | | $ | (4.7 | ) | | $ | 7.4 | | | $ | 3.0 | | | $ | (101.4 | ) |
Third Quarter 2023 | | 203.4 | | | | 22.7 | | | | 6.2 | | | | 1.7 | | | | 234.0 | |
First Nine Months of 2024(4) | $ | 405.3 | | | $ | 61.2 | | | $ | 29.5 | | | $ | 7.2 | | | $ | 503.2 | |
First Nine Months of 2023 | | 662.8 | | | | 79.1 | | | | 22.2 | | | | 8.1 | | | | 772.2 | |
(1)Intersegment sales from Consumer International to Consumer Domestic, which are not reflected in the table, were $7.0 and $4.7 for the three months ended September 30, 2024 and September 30, 2023, respectively, and were $19.6 and $11.7 for the nine months ended September 30, 2024 and September 30, 2023, respectively.
(2)In determining income (loss) before income taxes, interest expense, investment earnings and certain aspects of other income and expense were allocated among the segments based upon each segment’s relative income (loss) from operations.
(3)Corporate segment consists of equity in earnings of affiliates from Armand and ArmaKleen for the three and nine months ended September 30, 2024 and September 30, 2023. The Company’s 50% interest in Armakleen was sold to an unrelated third party in October of 2024. The transaction is not material to the Company’s results of operations or cash flows.
(4)In the third quarter and first nine months of 2024, the results include the VMS non-cash intangible and PP&E impairment charges of $357.1 in SG&A expenses, of which $327.4 was recorded in the Consumer Domestic segment and $29.7 was recorded in the Consumer International segment.
Product line revenues from external customers are as follows:
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Nine Months Ended | |
| | September 30, | | | September 30, | | | September 30, | | | September 30, | |
| | 2024 | | | 2023 | | | 2024 | | | 2023 | |
Household Products | | $ | 637.4 | | | $ | 636.2 | | | $ | 1,929.5 | | | $ | 1,857.0 | |
Personal Care Products | | | 533.4 | | | | 496.9 | | | | 1,577.1 | | | | 1,521.2 | |
Total Consumer Domestic | | | 1,170.8 | | | | 1,133.1 | | | | 3,506.6 | | | | 3,378.2 | |
Total Consumer International | | | 267.7 | | | | 244.4 | | | | 786.4 | | | | 716.9 | |
Total SPD | | | 72.1 | | | | 78.4 | | | | 232.1 | | | | 244.8 | |
Total Consolidated Net Sales | | $ | 1,510.6 | | | $ | 1,455.9 | | | $ | 4,525.1 | | | $ | 4,339.9 | |
Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products, cold and remedy products, and gummy dietary supplements.
Consumer Domestic
Consumer Domestic net sales in the third quarter of 2024 were $1,170.8, an increase of $37.7 or 3.3% as compared to the same period in 2023. Consumer Domestic net sales for the nine months ended September 30, 2024 were $3,506.6, an increase of $128.4 or 3.8% as compared to the same period in 2023. The components of the net sales change are the following:
| | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | |
Net Sales - Consumer Domestic | 2024 | | | 2024 | |
Product volumes sold | | 2.6 | % | | | 3.1 | % |
Pricing/Product mix | | 0.7 | % | | | 0.7 | % |
Net Sales increase | | 3.3 | % | | | 3.8 | % |
The increase in net sales for three months ended September 30, 2024 includes growth from HERO® acne treatment products, THERABREATH® mouth wash, ZICAM® cold shortening and relief products, SPINBRUSH® battery-operated toothbrushes, ARM & HAMMER® baking soda, and ARM & HAMMER® scent boosters, partially offset by declines in VITAFUSION® and L’IL CRITTERS® gummy vitamins, and FINISHING TOUCH FLAWLESS® hair removal products. The increase in net sales for the nine-month period ending September 30, 2024, includes growth from THERABREATH® mouth wash, HERO® acne treatment products, ARM & HAMMER® cat litter, ARM & HAMMER® baking soda, and BATISTE® dry shampoo, partially offset by declines in VITAFUSION® and L’IL CRITTERS® gummy vitamins, FINISHING TOUCH FLAWLESS® hair removal products, and WATERPIK® Shower Heads.
Consumer Domestic loss before income taxes for the third quarter of 2024 was $(107.1), a decrease of $310.5 as compared to the third quarter of 2023. The decrease is due to the VMS non-cash intangible and PP&E impairment charges of $327.4. Excluding the non-cash impairment charges, Consumer Domestic income before income taxes increased by $16.9 and was impacted by higher sales volumes of $22.1, the benefit of productivity programs of $19.6, favorable price/mix of $10.8, and favorable interest and other expenses of $10.6 (including interest related to tariff recoveries of $4.6), partially offset by the impact of higher manufacturing and distribution expenses of $28.1, higher marketing expenses of $13.7, and higher SG&A expenses of $4.5. For the nine-month period ended September 30, 2024, income before income taxes was $405.3, a $257.5 decrease as compared to the first nine months of 2023. The decrease is due to the VMS non-cash intangible and PP&E impairment charges of $327.4. Excluding the non-cash impairment charges, Consumer Domestic income before income taxes increased $69.9 and was impacted by higher sales volumes of $64.1, the benefit of productivity programs of $54.2, favorable price/mix of $20.5, a favorable tariff ruling of $29.3 and favorable interest and other expenses of $22.2 (including interest related to tariff recoveries of $4.6), partially offset by higher marketing expenses of $53.4, higher SG&A expenses of $34.1, and higher manufacturing and distribution expenses of $33.0.
Consumer International
Consumer International net sales were $267.7 in the third quarter of 2024, an increase of $23.3 or 9.5% as compared to the same period in 2023. Consumer International net sales in the first nine months of 2024 were $786.4, an increase of $69.5 or 9.7% as compared to the same period in 2023. The components of the net sales change are the following:
| | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | |
Net Sales - Consumer International | 2024 | | | 2024 | |
Product volumes sold | | 5.3 | % | | | 5.1 | % |
Pricing/Product mix | | 2.8 | % | | | 3.6 | % |
Foreign exchange rate fluctuations | | (0.5 | )% | | | 0.3 | % |
Acquired product line(1) | | 1.9 | % | | | 0.7 | % |
Net Sales increase | | 9.5 | % | | | 9.7 | % |
(1)The Graphico acquisition is included in our results since June 1, 2024, the date of acquisition.
Excluding the impact of foreign exchange rates and the Graphico acquisition, sales growth in the third quarter ended September 30, 2024 was driven by OXICLEAN® stain removers, THERABREATH® mouth wash, ULTRAMAX® antiperspirant deodorant, and VITAFUSION® and L’IL CRITTERS® gummy vitamins, in GMG (the "Global Markets Group"), and HERO® acne treatment products in Europe, Canada and Australia. The increase in net sales for the nine-month period ending September 30, 2024, was driven
by OXICLEAN® stain removers, THERABREATH® mouth wash, ULTRAMAX® antiperspirant deodorant, and VITAFUSION® and L’IL CRITTERS® gummy vitamins, in GMG, HERO® acne treatment products in Europe, HERO® acne treatment products in Canada, and THERABREATH® mouth wash in Mexico.
Consumer International loss before income taxes was $(4.7) in the third quarter of 2024, a $27.4 decrease as compared to the third quarter of 2023 due to the VMS non-cash intangible and PP&E impairment charges of $29.7. Excluding the non-cash impairment charges, Consumer International income before income taxes increased $2.3 and was impacted by higher sales volumes of $6.5, a favorable price/mix of $4.5, lower manufacturing and commodity costs of $1.6, and favorable interest and other expenses of $1.1, offset by the impact of higher SG&A expenses of $6.0, higher marketing expenses of $4.3 and unfavorable foreign exchange rates of $1.1. For the first nine months of 2024, income before income taxes was $61.2, a $17.9 decrease as compared to the same period in 2023. The decrease is due to the VMS non-cash intangible and PP&E impairment charges of $29.7. Excluding the non-cash impairment charges, Consumer International income before income taxes increased $11.8, and was impacted by a favorable price/mix of $26.6, higher sales volumes of $17.5, favorable interest and other expenses of $1.7, and lower manufacturing and commodity costs of $1.3, partially offset by higher SG&A expenses of $17.2, higher marketing expenses of $16.1 and unfavorable foreign exchange rates of $2.0.
Specialty Products (“SPD”)
SPD net sales were $72.1 in the third quarter of 2024, a decrease of $6.3 or 8.0% as compared to the same period in 2023. SPD net sales were $232.1 for the first nine months of 2024, a decrease of $12.7, or 5.2% as compared to the same period in 2023. The components of the net sales change are the following:
| | | | | | | |
| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | |
Net Sales - SPD | 2024 | | | 2024 | |
Product volumes sold | | 3.6 | % | | | 3.5 | % |
Pricing/Product mix | | 3.9 | % | | | 2.6 | % |
Exit of product lines (1) | | (15.5 | )% | | | (11.3 | )% |
Net Sales decrease | | (8.0 | )% | | | (5.2 | )% |
(1)We exited the MEGALAC supplement portion of the Animal Nutrition business in the first quarter of 2024 and sold the Passport food safety business in the second quarter of 2024.
Net sales excluding product line divestitures increased in the three and nine months ended September 30, 2024 primarily due to growth in our animal nutrition and specialty chemicals segments.
SPD income before income taxes was $7.4 in the third quarter of 2024, an increase of $1.2 as compared to the same period in 2023 due to a favorable price/mix of $2.6, favorable manufacturing costs of $1.0, lower SG&A and other costs of $0.5, and lower marketing costs of $0.1, offset by the impact of lower sales volumes of $3.0 due to the exit of certain product lines. SPD income before income taxes was $29.5 in the first nine months of 2024, an increase of $7.3 as compared to the same period in 2023 to favorable price/product mix of $5.9, lower marketing expenses of $1.6, lower SG&A and other costs of $1.9, and favorable manufacturing costs of $0.2, partially offset by the impact of lower sales volumes of $2.2 due to the exit of certain product lines.
Corporate
The Corporate segment includes equity in earnings of affiliates from Armand and ArmaKleen in the three and nine months of 2024 and 2023. The Corporate segment income before income taxes was $3.0 in the third quarter of 2024, as compared to $1.7 in the same period in 2023. The Corporate segment income before income taxes was $7.2 for the first nine months of 2024, as compared to $8.1 in the same period in 2023. In October 2024 the Company sold its 50% interest in Armakleen to an unrelated third party. The transaction is not material to the Company’s results of operations or cash flows.
Liquidity and Capital Resources
On October 28, 2021, the Board authorized the Company's share repurchase program, under which we may repurchase up to $1,000.0 in shares of Common Stock (the “2021 Share Repurchase Program”). The 2021 Share Repurchase Program does not have an expiration and replaced the 2017 Share Repurchase Program. The 2021 Share Repurchase Program did not modify our evergreen share repurchase program, authorized by the Board on January 29, 2014, under which we may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under our incentive plans. There have been no stock repurchases in 2024 under the 2021 Share Repurchase Program.
On June 16, 2022, we entered into a credit agreement (the “Credit Agreement”) that provides for our $1,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”) that matures on June 16, 2027, unless extended. We have the ability to increase our borrowing up to an additional $750.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,500.0 commercial paper program.
On January 31, 2024, the Board declared a 4% increase in the regular quarterly dividend from $0.2725 to $0.28375 per share, equivalent to an annual dividend of $1.135 per share, payable to stockholders of record as of February 15, 2024. The increase raises the annual dividend payout from $267.0 to approximately $276.0 on an annualized basis.
In the first quarter of 2024, we repaid the remaining $200.0 of our Term Loan due December 22, 2024 with cash on hand.
As of September 30, 2024, we had $752.1 in cash and cash equivalents, and approximately $1,495.0 available through the Revolving Credit Facility and our commercial paper program. To preserve our liquidity, we invest cash primarily in government money market funds, prime money market funds, short-term commercial paper and short-term bank deposits.
As of September 30, 2024, there remains $658.9 of share repurchase availability under the 2021 Share Repurchase Program.
The current economic environment presents risks that could have adverse consequences for our liquidity. See “Unfavorable economic conditions could adversely affect demand for our products” under “Risk Factors” in Item 1A of our Annual Report on Form 10-K. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. We do not anticipate that current economic conditions will adversely affect our ability to comply with the financial covenant in the Credit Agreement. We currently are, and anticipate that we will continue to be, in compliance with the interest coverage ratio requirement under the Credit Agreement.
We anticipate that our cash from operations, together with our current borrowing capacity, will be sufficient to fund our share repurchase programs to the extent implemented by management, pay debt and interest as it comes due, pay dividends at the latest approved rate, and meet our capital expenditure program costs, which are expected to be approximately $180.0 in 2024 primarily for manufacturing capacity investments in laundry and litter to support expected future sales growth. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.
Cash Flow Analysis
| | | | | | | |
| Nine Months Ended | |
| September 30, | | | September 30, | |
| 2024 | | | 2023 | |
Net cash provided by operating activities | $ | 863.9 | | | $ | 795.1 | |
Net cash used in investing activities | $ | (138.1 | ) | | $ | (128.4 | ) |
Net cash used in financing activities | $ | (318.3 | ) | | $ | (363.0 | ) |
Net Cash Provided by Operating Activities – Our primary source of liquidity is the cash flow provided by operating activities, which is dependent on net income and changes in working capital. Our net cash provided by operating activities in the nine months ended September 30, 2024 increased by $68.8 to $863.9 as compared to $795.1 in the same period in 2023 primarily due to an increase in cash earnings (net income adjusted for non-cash items). We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended September 30, 2024 and 2023:
| | | | | | | | | | | |
| As of | | | | |
| September 30, 2024 | | | September 30, 2023 | | | Change | |
Days of sales outstanding in accounts receivable ("DSO") | | 34 | | | | 28 | | | | 6 | |
Days of inventory outstanding ("DIO") | | 70 | | | | 75 | | | | (5 | ) |
Days of accounts payable outstanding ("DPO") | | 75 | | | | 76 | | | | 1 | |
Cash conversion cycle | | 29 | | | | 27 | | | | 2 | |
Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two-period average method, increased 2 days from the prior year. The increase in DSO is related to a reduction in our accounts receivable factoring program in response to higher interest rates. The decrease in DIO is a result of the timing of inventory purchases for most of our brands and a reduction in inventory purchases related to our discretionary brands. We continue to focus on reducing our working capital requirements.
Net Cash Used in Investing Activities – Net cash used in investing activities during the first nine months of 2024 was $138.1, primarily reflecting $125.2 for property, plant and equipment additions and $19.9 for the Graphico Acquisition, partially offset by $6.6 of proceeds from the sale of assets. Net cash used in investing activities during the first nine months of 2023 was $128.4, primarily reflecting $121.5 property, plant and equipment additions.
Net Cash Used in Financing Activities – Net cash used in financing activities during the first nine months of 2024 was $318.3 reflecting $200.4 of net debt payments and $207.4 of cash dividend payments, partially offset by $90.3 of proceeds from stock option exercises. Net cash used in financing activities during the first nine months of 2023 was $363.0, reflecting $199.9 of cash dividend payments and $270.6 of net debt repayments, partially offset by $107.6 of proceeds from stock option exercises.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk
For quantitative and qualitative disclosures about market risk affecting the Company, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 7A of Part II in the Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission (the “Commission”), and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
b) Change in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurring during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION
This report contains forward-looking statements, including, among others, statements relating to net sales and earnings growth; gross margin changes; trade and marketing spending; marketing expense as a percentage of net sales; sufficiency of cash flows from operations; earnings per share; the impact of new accounting pronouncements; cost savings programs; recessionary conditions; interest rates; inflation; consumer demand and spending; the effects of competition; the effect of product mix; volume growth, including the effects of new product launches into new and existing categories; the decline of condom usage; the Company’s hedge programs; the impact of foreign exchange, and commodity price fluctuations; impairments and other charges; the Company’s investments in joint ventures; the impact of acquisitions and divestitures; capital expenditures; the Company’s effective tax rate; the
impact of tax audits; tax changes; the effect of the credit environment on the Company’s liquidity and capital resources; the Company’s fixed rate debt; compliance with covenants under the Company’s debt instruments; the Company’s commercial paper program; the Company’s current and anticipated future borrowing capacity to meet capital expenditure program costs; the Company’s share repurchase programs; payment of dividends; environmental and regulatory matters; the availability and adequacy of raw materials, including trona reserves and the conversion of such reserves; and the customers and consumer acceptance of certain ingredients in our products. Other forward-looking statements in this report are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable terms. These statements represent the intentions, plans, expectations and beliefs of the Company, and are based on assumptions that the Company believes are reasonable but may prove to be incorrect. In addition, these statements are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. Factors that could cause such differences include a decline in market growth, retailer distribution and consumer demand (as a result of, among other things, political, economic and marketplace conditions and events), including those relating to the outbreak of contagious diseases; the impact of new legislation such as the U.S. CARES Act, the EU Medical Device Regulation, new cosmetic and device regulations in Mexico, and the U.S. Modernization of Cosmetic Regulation Act; the impact on the global economy of the Russia/Ukraine war or increased conflict in the Middle East, including the impact of export controls and other economic sanctions; potential recessionary conditions or economic uncertainty; the impact of continued shifts in consumer behavior, including accelerating shifts to on-line shopping; unanticipated increases in raw material and energy prices, including as a result of the Russia/Ukraine war or conflict in the Middle East; delays and increased costs in manufacturing and distribution; increases in transportation costs; labor shortages; the impact of price increases for our products; the impact of inflationary conditions; the impact of supply chain and labor disruptions; the impact of severe weather on raw material and transportation costs; adverse developments affecting the financial condition of major customers and suppliers; competition; changes in marketing and promotional spending; growth or declines in various product categories and the impact of customer actions in response to changes in consumer demand and the economy, including increasing shelf space or on-line share of private label and retailer-branded products or other changes in the retail environment; impairment charges or other negative impacts to the value of the Company’s assets; consumer and competitor reaction to, and customer acceptance of, new product introductions and features; the Company’s ability to maintain product quality and characteristics at a level acceptable to our customers and consumers; disruptions in the banking system and financial markets; the Company’s borrowing capacity and ability to finance its operations and potential acquisitions; higher interest rates; foreign currency exchange rate fluctuations; transition to, and shifting economic policies in the United States; potential changes in export/import and trade laws, regulations and policies of the United States and other countries, including any increased trade restrictions; increased or changing regulation regarding the Company’s products and its suppliers in the United States and other countries where it or its suppliers operate; market volatility; issues relating to the Company’s information technology and controls; the impact of natural disasters, including those related to climate change, on the Company and its customers and suppliers, including third party information technology service providers; integrations of acquisitions or divestiture of assets; the outcome of contingencies, including litigation, pending regulatory proceedings and environmental matters; and changes in the regulatory environment in the countries where we do business.
The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the United States federal securities laws. You are advised, however, to consult any further disclosures the Company makes on related subjects in its filings with the United States Securities and Exchange Commission (the “Commission”).
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
General
The Company, in the ordinary course of its business, is subject of, or party to, various pending or threatened legal actions, government investigations and proceedings from time to time, including, without limitation, those relating to commercial transactions, product liability, purported consumer class actions, employment matters, antitrust, environmental, health, safety and other compliance related matters. Such proceedings are subject to many uncertainties and the outcome of certain pending or threatened legal actions may not be reasonably predictable and any related damages may not be estimable. Certain legal actions could result in an adverse outcome for us, and any such adverse outcome could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Item 1A, “Risk Factors” in the Form 10-K, which could materially affect the Company’s business, financial condition or future results, as well as the following update to our Risk Factors:
Impairment of our goodwill and other long-lived intangible and tangible assets may result in a reduction in net income.
We have a material amount of goodwill, trademarks and other intangible assets, as well as other long-lived tangible assets, which are periodically evaluated for impairment in accordance with current accounting standards. Declines in our profitability and/or estimated cash flows related to specific intangible assets, as well as potential changes in market valuations for similar assets and market discount rates, has resulted in impairment charges from time to time, and may result in future impairment charges. In the fourth quarter of 2022, we recorded an impairment charge in connection with the FINISHING TOUCH FLAWLESS intangible assets. In the third quarter of 2024, due to continued decline in market share and a deterioration in the financial performance for Vitamins, Minerals and Supplements business, which includes the VITAFUSION and L’IL CRITTERS tradename, we reassessed our long-term strategy and financial outlook of the business. The revised financial outlook reflects lower estimates of future sales growth and cash flows resulting in a triggering event which required the Company to review the carrying value of long-lived assets supporting the business and resulted in impairment charges as discussed in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS
The Company repurchases shares of its Common Stock from time to time pursuant to its publicly announced share repurchase programs.
During the third quarter of 2024 the Company did not repurchase any shares of Common Stock pursuant to its share repurchase programs. The following table contains information for shares repurchased during the third quarter of 2024, which was solely due to shares of Common Stock withheld by the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock.
As a result of the Company’s stock repurchases, there remains $658.9 of share repurchase availability under the 2021 Share Repurchase Program as of September 30, 2024.
| | | | | | | | | | | | | | | | |
Period | | Total
Number of
Shares
Purchased | | | Average
Price Paid
per Share | | | Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs | | | Approximate Dollar
Value of Shares that
May Yet Be Purchased Under All
Programs | |
7/1/2024 to 7/31/2024 | | | - | | | $ | - | | | | - | | | $ | 658,905,959 | |
8/1/2024 to 8/31/2024 | | | - | | | | - | | | | - | | | $ | 658,905,959 | |
9/1/2024 to 9/30/2024 | | | 137 | | | | 102.37 | | | | - | | | $ | 658,905,959 | |
Total | | | 137 | | | $ | 102.37 | | | | - | | | | |
ITEM 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the nine months ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company's securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(a) of Regulation S-K).
ITEM 6. EXHIBITS
Exhibit Index
| | | | |
| | | | |
| | (3.1) | | Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3.1 to the Company’s quarterly report on Form 10-Q filed on June 30, 2020. |
| | | | |
| | (3.2) | | Amendment to the Company’s Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 30, 2021. |
| | | | |
| | (3.3) | | Amendment to the Company’s Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on May 6, 2024. |
| | | | |
| | (3.4) | | By-laws of the Company, amended and restated as of April 27, 2023, incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on April 28, 2023. |
| | | | |
| | (31.1) | | Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act. |
| | | | |
| | (31.2) | | Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) under the Securities Exchange Act. |
| | | | |
| | (32.1) | | Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350. |
| | | | |
| | (32.2) | | Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350. |
| | (101.INS) | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | | | |
| | (101.SCH) | | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
| | | |
| | (104) | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
•Indicates documents filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | |
| | | | CHURCH & DWIGHT CO., INC. |
| | | | (REGISTRANT) |
| | | | |
DATE: | | November 1, 2024 | | /s/ Richard A. Dierker |
| | | | RICHARD A. DIERKER |
| | | | Executive Vice President |
| | | | and Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
DATE: | | November 1, 2024 | | /s/ Joseph J. Longo |
| | | | JOSEPH J. LONGO |
| | | | VICE PRESIDENT AND |
| | | | CONTROLLER |
| | |
| (PRINCIPAL ACCOUNTING OFFICER) |
