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Church & Dwight Prepared For Aggressive Retail Battle In 2010

This article was originally published in The Tan Sheet

Executive Summary

Church & Dwight is bracing for a cutthroat retail landscape in 2010, expecting increased competition for shelf space as firms wield aggressive trade promotions and advertising

Church & Dwight is bracing for a cutthroat retail landscape in 2010, expecting increased competition for shelf space as firms wield aggressive trade promotions and advertising.

CEO James Craigie told analysts Feb. 9 that 2010 will be more challenging than 2009, with marketers relying increasingly on actual sales of products - as opposed to price increases - to drive growth.

Key to performance will be securing and keeping shelf space as marketers that have lost market share spend heavily on trade promotions to win it back.

"It's going to be a unit growth year, it's going to be a share growth year," Craigie said during the firm's fiscal 2009 fourth-quarter earnings call.

He added that price increases will not drive brand growth. "I think you see companies realizing that and getting more aggressive on the promotion side, because they are not going to be able to lay back and take price increases and have the price increase flow through."

"If you're counting on dollar growth in your category, you better have a pretty good reason for it," Craigie said.

He observed the 2010 retail environment is shaped not only by consumers trading down to lower-priced products, but also by retailer vigilance in reassessing and resetting their merchandise lineups.

"Almost all the retailers out there are trying to find the best answer to drive growth," he said. "They are struggling, and so if they do a [yearly] reset and it works, great. If they don't they are rethinking it on the fly. So nothing is set in stone for a year anymore."

C&D Looks To Gain Shelf Space

Church & Dwight is well positioned for the year with a portfolio that straddles the value- and premium-brand divide.

On one end, the firm's eight "power brands" - premium products including Arm & Hammer household and personal care products and the Nair hair removal line - are market leaders in their categories. On the other end are the value brands, such as Aim toothpaste, which continues capturing consumers who trade down to less expensive items.

"Over the past year, our value brands, which are 40 percent of our portfolio, have experienced exceptional growth," Craigie said.

This year, the firm will introduce 35 products in the hopes of expanding its retail shelf space. While the firm has launched more products in previous years, the 2010 planned items are more "meaningful" entries, the CEO noted.

"We're looking for stuff that's at least eight digits type impact on the business," he said. Without providing details, he noted the firm is planning a "major product innovation" in the back half of the year.

This year the company will hit a milestone, as its Arm & Hammer brand, which includes toothpastes, deodorants and laundry detergent, will become its first $1 billion brand.

Ad Spend Will Be Competitive

Church & Dwight plans to maintain marketing spending in 2010 around $60 million, in line with 2009, but indicated it will respond appropriately to competitor activity. "We are not going to let anyone have an advantage over us," Craigie said.

Church & Dwight continues to seek acquisitions, with a focus on high-growth and -margin brands that are "asset light." The firm has said it believes a scarcity of bidders will ensure an attractive buying price (1 (Also see "Church & Dwight Ready To Deal For More Personal Care Brands" - Pink Sheet, 9 Feb, 2009.)).

The firm's total fourth-quarter net sales increased 4 percent to $670.8 million, including a 5.8 percent increase in consumer product sales to $606 million, according to a same-day earnings release.

Consumer product domestic sales grew 3.4 percent to $493.8 million while international sales surged 17.9 percent to $112.1 million. Favorable foreign exchange rate changes impacted net sales by 10.5 percent, the firm says.

Full-year 2009 net sales advanced 4.1 percent to $2.52 billion and net income grew 24.8 percent to $243.5 million. Earnings per share increased 22 percent to $3.48, excluding plant restructuring charges of 24 cents per share and a favorable legal settlement of 17 cents per share. For 2010, the firm anticipates 4 percent to 5 percent organic sales growth and a 13 percent to 15 percent increase in earnings per share to between $3.93 and $4.00.

- Eileen Francis ( 2 [email protected] )

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