Church & Dwight's Tepid Q2 Sends Its Stock Plunging, but We Still See Shares as Massively Overheated

We’ve long held no-moat Church & Dwight lacks the scale, resources, and negotiating prowess of its larger household and personal care brethren. We see this as an unenviable position, particularly when juxtaposed with unrelenting macro and competitive pressures, commodity cost headwinds, and supply chain tension. The pain inflicted from these factors manifested in weak second-quarter marks for Church. While organic sales edged up 3.4%, a 6.3% increase in prices charged prompted a 2.9% drawdown in volumes (reflective of Church’s inferior pricing power, in our view), with particular impact in its more discretionary offerings (WaterPik and Flawless, which combined represent around 10% of its sales). Further, its gross margin contracted 220 basis points to 41.2%, and, as inflation is unlikely to abate, management now foresees $135 million in incremental costs in fiscal 2022, up from $85 million three months ago.