(Source: Business Wire)Church & Dwight Co., Inc. (NYSE:CHD) today reported net income for the quarter ended September 25, 2009 of $70.0 million or $0.98 per share, compared to last year's reported net income of $49.0 million or $0.69 per share. The quarter included a favorable legal settlement of $20.0 million net of legal fees or $0.17 per share. Excluding the legal settlement and the previously announced plant restructuring charge of $0.05 per share this year and $0.04 last year, third quarter earnings were $0.86 per share compared to $0.73 per share in the prior year third quarter.

Third Quarter Review

Reported net sales for the third quarter increased approximately 2.5% to $646.2 million. Organic sales grew 5.7% for the quarter.

James R. Craigie, Chairman and Chief Executive Officer, commented, "The strong organic sales growth was driven by consumer appeal of our high quality premium products and value-oriented products, new products, carryover benefits of 2008 pricing actions and a record level of marketing spending, partially offset by soft sales in the Specialty Products Division. We increased sales and market share for seven of our eight "power brands" in the quarter, and achieved strong organic sales growth in both our household and our personal care product lines. Our results also reflect exceptional gross and operating margin expansion. The improved gross margin reflects lower commodity costs, pricing, and our continuing robust cost reduction programs."

Consumer Domestic sales were $481.7 million, a $36.9 million increase or 8.3% above the prior year third quarter sales. Excluding a divestiture, the third quarter organic sales increased by 9.1% as a result of higher sales of the following brands: XTRA Liquid Laundry Detergent, ARM & HAMMER Liquid Laundry Detergent, ARM & HAMMER Super Scoop cat litter, OXICLEAN Laundry Additive, TROJAN and SPINBRUSH.

Consumer International sales were $104.0 million, an $8.6 million decrease or 7.6% below the prior year third quarter sales. Unfavorable foreign exchange impacted net sales by 10.9%, and divested businesses accounted for a 2.7% reduction in sales. After giving effect to these items, third quarter organic sales increased by 6% primarily driven by increases in Canada, Australia and UK.

Specialty Products sales were $60.4 million, a $13.0 million decrease or 17.6% below the prior year third quarter sales. Unfavorable foreign exchange rates accounted for 2.3% of the decline. Excluding the effect of unfavorable foreign exchange rates, organic sales for the third quarter decreased by 15.3%, primarily due to a sharp decline in U.S. milk prices that has resulted in significantly lower volumes in the animal nutrition business.

Gross margin increased to 44.1% in the third quarter compared to 39.8% in the same quarter last year. Excluding the plant restructuring charge reflected in cost of sales ($6.7 million in 2009 and $4.3 million in 2008), gross margin was 45.1 % this year compared to 40.5% last year, a 460 basis point improvement over the prior year third quarter. The increase in gross margin reflects lower commodity costs, price increases and the benefits of cost reduction programs partially offset by an asset impairment charge of approximately $4million related to an international subsidiary.

Marketing expense was $100.2 million in the third quarter, a $20.5 million increase over the prior year third quarter. The increased marketing spending was focused on the Company's eight power brands. Marketing expense as a percentage of net sales increased 290 basis points to 15.5% in the quarter compared to 12.6% in last year's third quarter.

Selling, general, and administrative expense (SG&A) was $86.8 million in the third quarter, a $1 million increase over the prior year third quarter. SG&A as a percentage of net sales was 13.4% in the quarter, a decrease of 20 basis points from the prior year third quarter. Excluding a $3.5 million loss in the prior year third quarter related to a divestiture, SG&A increased 30 basis points. The increase in SG&A is attributed to higher compensation and information systems costs in the quarter.

During the third quarter the Company entered into a settlement agreement relating to certain outstanding patent disputes. Under the terms of the agreement the Company received $20.0 million, net of legal expenses.

Operating income increased 38% to $117.9 million in the third quarter compared to $85.5 million in the prior year third quarter. Operating margin expanded 460 basis points to 18.2% and, excluding the legal settlement and the plant restructuring charges expanded 200 basis points to 16.2%.

The effective tax rate in the third quarter was 37.8% compared to 34.4% in the prior year third quarter. The prior year quarter included a tax benefit of $4 million related to the divestiture of an international subsidiary. The effective tax rate for the full year is expected to be approximately 38.0%.

Net Debt and Free Cash Flow

At quarter-end, the Company had net debt of $417 million (total debt of $836 million less cash of $419 million) compared to net debt at December 31, 2008 of $658 million (total debt of $856 million less cash of $198 million). The leverage ratio of total debt to Adjusted EBITDA (as defined in the Company's principal credit agreement) is 1.7 for the twelve months ended September 25, 2009.

For the first nine months of 2009, the Company reported $309 million of net cash from operations compared to $222 million in the first nine months of 2008. For the first nine months of 2009, the Company generated $222 million in free cash flow compared to $179 million in the prior year period. The increase in free cash flow is primarily related to higher net income, higher non-cash expenses and improved working capital management. Free cash flow is defined as net cash from operations less capital expenditures.

Capital expenditures in the first nine months of 2009 were $87.2 million and included approximately $68 million related to the construction of the new laundry detergent manufacturing plant and warehouse in York County, Pennsylvania. Free cash flow was $289 million for the first nine months of 2009, excluding the capital expenditures for the new Pennsylvania facility.

New Manufacturing Plant and Distribution Center

The Company is progressing with its project to construct a new integrated laundry detergent manufacturing plant and distribution center in York County, Pennsylvania and to implement the related closing of the Company's North Brunswick, NJ complex. The new facility opened and began production ahead of schedule in the third quarter of 2009. The Company has spent $68 million for the first nine months, and expects to spend an additional $27 million in the fourth quarter and $5 million in 2010 in capital expenditures and cash transition expenses. Total expenditures on the project from 2008 to 2010 are expected to be approximately $159 million. The new facility is expected to be a significant contributor to gross margin expansion in 2010.

The project resulted in plant restructuring charges of $6.7 million or $0.05 per share in the third quarter and $4.3 million or $0.04 per share in the prior year third quarter. These charges relate primarily to accelerated depreciation of the North Brunswick complex and severance and other one-time costs associated with the closing of these facilities.

Outlook

Mr. Craigie commented, "In the fourth quarter we expect organic sales growth of approximately 4% for global consumer products. The 4% organic growth in global consumer products will be partially offset by depressed sales in our Specialty Products division due to the weak milk market, resulting in a net 2% organic sales growth for the total Company. Gross margin expansion and marketing spending are expected to be strong in the fourth quarter of 2009 as we continue to build the brand equity of our 8 power brands.

For full year 2009, we expect to achieve organic sales growth of approximately 4%-4.5% for the total Company which reflects approximately 7% organic sales growth for global consumer products offset by significantly lower Specialty Products sales. We are raising our expectation for gross margin expansion to approximately 400 basis points over 2008 (excluding plant restructuring charges) and we continue to expect marketing spending to be approximately 14.0% of sales, up 190 basis points, for the year. We expect these brand-building investments will strengthen our ability to meet or exceed our long-term organic growth targets in 2010 and beyond."

With regard to full year earnings for 2009, Mr. Craigie said, "Due to our solid performance to date, we are raising our previously announced earnings per share estimate of $3.35-$3.40 to $3.40-$3.43, which represents a 19% to 20% increase over 2008 results, excluding plant restructuring charges and the litigation settlement. The 2009 reported earnings per share (including the expected $0.22 per share plant restructuring charge and the $0.17 per share legal settlement) is expected to be $3.35-$3.38, representing a 21%-22% increase over 2008 reported results.

Church & Dwight will host a conference call to discuss third quarter 2009 results on November 3, 2009 at 10:00a.m. (ET). To participate, dial in at 866-730-5766 (international: 857-350-1590), access code: 28189750. A replay will be available two hours after the call at 888-286-8010 (international: 617-801-6888), access code: 22047891. Also, you can participate via webcast by visiting the Investor Relations section of the Company's website at www.churchdwight.com.

Church & Dwight Co., Inc.