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C&D Bullish On Trojan Business As More U.S. Condom Competition Looms

This article was originally published in The Tan Sheet

Executive Summary

Church & Dwight expects continued sales growth for its Trojan brand condoms, largely through line extensions, even with a change in U.S. competition looming from Reckitt Benckiser's pending ownership of the Durex condom brand

Church & Dwight expects continued sales growth for its Trojan brand condoms, largely through line extensions, even with a change in U.S. competition looming from Reckitt Benckiser's pending ownership of the Durex condom brand.

CEO James Craigie is bullish on the Trojan business outlook for the remainder of 2010, maintaining that new offerings under the brand's Ecstasy and Fire & Ice stock-keeping units and strong sales of Magnum SKUs will yield "record" results for the brand in 2010.

In the firm's fiscal 2010 second quarter, Trojan achieved "excellent" results, with new products and market share gains pushing the brand's sales up high single-digits, the firm said Aug. 5.

Recent launches nudged the brand's leading market share up 0.5 percent to 75.8 percent of the category in the U.S., Craigie said during a same-day earnings call.

Ecstasy, which debuted in the third quarter of 2009, "is the most successful new product launch in category history," and now accounts for 11.8 percent of the condom market, he said.

Ecstasy's performance inspired the 2010 launch of Fire & Ice, which features "unique lubricants on the inside and outside of the condom to enhance sensation" (1 (Also see "Simply Saline Acquisition Globalizes Church & Dwight's Nasal Hygiene Reach" - Pink Sheet, 17 May, 2010.)).

"The early share results for the Fire & Ice line are tracking at the same pace as the record-setting Ecstasy introduction last year," Craigie said.

Acknowledging Reckitt's recent $3.89 billion agreement to purchase Durex brand owner SSL International, which also markets Scholl foot care products, Craigie said Reckitt is a "great" company and will have a great deal of integration work to add SSL's business.

But he did not allow for any change in C&D's Trojan outlook. Reckitt "paid a humongous price. They're promising tremendous synergies. And that's all I can say," he said.

The Durex brand is the global leader in condoms, with 30 percent to 35 percent of sales, and is the top selling brand in 40 countries, according to a July 22 analyst note from UBS.

However, in the U.S. Durex is No. 2 to Trojan, which sold $48.7 million for the 12 weeks and $207.7 million for 52 weeks ending July 11, according to data from Chicago-based research firm Symphony IRI.

Durex condoms' three month share of the U.S. market was $8.7 million and for the 12-month period $38.7 million.

However, with Reckitt's greater marketing and distribution capabilities behind it, the Durex brand's U.S. sales could get a substantial boost in market share (2 (Also see "Reckitt Would Add Durex, Scholl Brands With SSL Acquisition" - Pink Sheet, 26 Jul, 2010.)).

Personal Care Down, Pipeline Strong

The strength of C&D's condom sales was not enough to lift the firm's personal care segment for the three months ended July 2 as the unit slumped 2.8 percent to $168.9 million.

C&D's reported net sales grew 2.9 percent in the quarter to $640.9 million. Organic sales were up 3.7 percent.

Second quarter earnings rose 27.6 percent to $74.3 million, attributed largely to a decrease in marketing spend. The company plans to further lower marketing spending in the third quarter in order to continue funding trade activity that it hopes will offset competitive pricing actions.

The condom business and launches in other categories will help C&D reach its 2010 organic sales growth target of 3 percent to 4 percent, Craigie said. That figure represents "5 or 6 percent offset partially by 2 percent on favorable price mix," he noted.

C&D identified its pipeline in 2010 as the strongest in its history.

While acknowledging weak consumer demand, the firm expects its full-year unit market share to grow for at least five of its eight top brands, which generate more than 80 percent of the company's revenues and profits.

Craigie noted C&D has "the cash and leverage" for acquisitions and is more likely to make a move within the next six to 12 months than it has been over the past two years.

- Eileen Francis

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