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Church & Dwight: Time to Rethink the Portfolio?

Course Hero Question 11 - What is your assessment of the outlook for Church & Dwight?

Criteria – No word limit and no page requirement; cite ANY source(s) used.

Reference –
Wheelen, T. L. & Hunger, J.D. (2012). Strategic management and business policy toward global sustainability. New Jersey: Pearson.

Church & Dwight: Time to Rethink the Portfolio? (Roy A. Cook) A decade ago, Church & Dwight was a largely household domestic products company with one iconic brand, delivering less than $1 billion in annual sales. Today, the company has been transformed into a diversified packaged goods company with a well-balanced portfolio of leading household and personal care brands delivering over $2.5 in annual sales worldwide”. Now, after a decade of rapid growth fueled by a string of acquisitions, the top management team is faced with a new challenge. It must now rationalize the firm’s expanded consumer products portfolio of 80 brands into the existing corporate structure while continuing to scout for new avenues of growth. This is no easy task as it competes for market share with such formidable consumer products powerhouses as Colgate-Palmolive, Clorox, and Procter & Gamble, commanding combined sales of over $100 billion. Future decisions will determine if the company can compete successfully with these other well-known giants in the consumer products arena or remain in their shadows. Background For over 160 years, Church & Dwight Co. Inc. has been working to build market share on a brand name that is rarely associated with the company. When consumers are asked, “Are you familiar with Church & Dwight products?” the answer is typically “No”. Yet, Church & Dwight products can be found among a variety of consumer products in 95% of all U.S. households. As the world’s producer and marketer of sodium bicarbonate-based products, Church & Dwight has achieved fairly consistent growth in both sales and earnings as new and expanded uses were found for its core sodium bicarbonate products. Although Church & Dwight may not be a household name, many of its core products bearing the ARM & HAMMER name are easily recognized. Shortly after its introduction in 1878, ARM & HAMMER Baking Soda became a fundamental item on the pantry shelf as homemakers found many uses for it other than baking, such as cleaning and deodorizing. The ingredients that can be found in that ubiquitous yellow box of baking soda can also be used as a dentrifice, a chemical agent to absorb or neutralize odors and acidity, a kidney dialysis element, a blast media, an environmentally friendly cleaning agent, a swimming pool ph stabilizer, and a pollution-control agent. Finding expanded uses for sodium bicarbonate and achieving orderly growth have been consistent targets for the company. Over the past 30 years, average company sales have increased 10% - 15% annually. While top-line sales growth has historically been a focal point for the company, a shift may have occurred in management’s thinking, as more emphasis seems to have been placed on bottom-line profitability growth. Since President and Chief Executive Officer James R. Cragie took over the helm of Church & Dwight from Robert A. Davies III in July of 2004, he has remained focused on “building a portfolio of strong brands with sustainable competitive advantages.” At that time, he proposed a strategy of reshaping the company through acquisitions and organic growth and he continues to state that “Our long-term objective is to maintain the company’s track record of delivering outstanding TSR (Total Shareholder Return) relative to that of the S&P 500. Our long-term business model for delivering this sustained earnings growth is based on annual organic growth of 3-4%, gross margin expansion, tight management of overhead costs and operating margin improvement of 60-70 basis points
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resulting in sustained earnings growth of 10-12% excluding acquisitions.” In addition, Cragie noted that “…[W]e have added $1 billion in sales in the past five years, a 72% increase, while reducing our total headcount by 5%, resulting in higher revenue per employee than all of our major competitors.” The results of these efforts can be seen in the financial statements shown in Exhibits 1, 2, and 3. Exhibit 1: Consolidated Statements of Income: Church & Dwight Co. Inc. (Dollars in thousands, except per share data) Management The historically slow but steady course Church & Dwight has traveled over the decades reflected stability in the CEO and a steady focus on long-term goals. The ability to remain focused maybe attributable to the fact that about 25% of the outstanding shares of common stock were owned by descendants of the company’s co-founders. Dwight C. Minton, a direct descendant of Austin Church, actively directed the company as CEO from 1969 through 1995 and remained on the board as Chairman Emeritus. He passed on the duties of CEO to the first non-family member in the company’s history, Robert A. Davies III, in 1995 and leadership at the top has remained a stable hallmark of the company. Many companies with strong brand names in the consumer products field have been susceptible to leveraged buy-outs and hostile takeovers; however, a series of calculated actions has spared Church & Dwight’s board and management from having to make last-minute decisions to ward off unwelcome suitors. Besides maintaining majority control of the outstanding common stock, the board amended the company’s charter, giving current shareholders four votes per share; however, they required future shareholders to buy and hold shares for four years before receiving the same privilege. The board of directors was also structured into three classes with four directors in each class serving staggered three-year terms. According to Minton, the objective of these moves was to “[give] the board control so as to provide the best results for shareholders.”
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What is your assessment of the outlook for Church & Dwight?
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