Church & Dwight Reports Third Quarter Earnings of $0.75 Per Share

Church & Dwight Co., Inc. (NYSE:CHD) today reported net income for the quarter ended September 28, 2007 of $51.7 million or $0.75 per share, an increase of $0.18 per share or 32% over last year’s $38.7 million or $0.57 per share. This year’s third quarter results include a $3.3 million pre-tax gain on the sale of property by the Company’s Canadian subsidiary ($0.04 per share) and a $1.3 million tax benefit related to the reduction of tax liabilities ($0.02 per share). Last year’s third quarter also included a tax benefit relating to the net reduction of tax liabilities ($0.03 per share). Net income for the nine months ended September 28, 2007 rose to $137.3 million or $2.00 per share, an increase of $0.29 per share or 17% over last year’s $115.0 million or $1.71 per share. Third Quarter Review Net sales for the quarter increased 12% to $580.4 million, which includes a 1% favorable impact of foreign exchange. Organic sales, which excludes the impact of acquisitions, and foreign exchange, increased by approximately 6% for the quarter. Third quarter sales also include the results of the Orange Glo International, Inc. (OGI) laundry additive and household cleaners business, which was acquired on August 6, 2006. Approximately 1% of organic sales growth is attributed to the initial wave of the liquid laundry detergent compaction launch in the United States. James R. Craigie, Chairman and Chief Executive Officer, commented, "We are very pleased with our third quarter results. Our new products and increased marketing spending are driving strong organic growth. In addition, our continuing focus on managing costs is helping to improve gross margins despite higher commodity and energy costs.” Consumer Domestic sales in the third quarter, which includes a full quarter of OGI sales were $407.7 million, a $37.6 million or 10% increase over the prior year third quarter sales of $370.1 million. Also contributing to higher sales were SpinBrush™ battery-operated toothbrushes, Arm & Hammer Super Scoop® cat litter, Arm & Hammer® liquid laundry detergent, Arm & Hammer® Carpet Deodorizer, Trojan® condoms, and Arm & Hammer® Dental Care toothpaste. These increases were partially offset by lower sales of other toothpaste and antiperspirant products. Consumer International sales of $105.6 million increased 13% over the prior year third quarter sales, of which 7% was due to foreign currency changes with the balance due to higher sales in Canada, France, and Brazil and the inclusion of the OGI business. Specialty Products sales grew 23% due to higher volumes and pricing in the animal nutrition and specialty chemicals businesses. Gross margin increased 40 basis points to 39.5% in the third quarter compared to 39.1% in the same quarter last year. Despite continuing cost pressures from commodities and energy, gross margins expanded due to cost-reduction programs, price increases and volume scale leverage. Marketing expense was $69.7 million in the third quarter, a $7.1 million increase over the prior year’s third quarter partially due to the acquired OGI business. Marketing expense as a percentage of net sales was 12.0% in the quarter compared to 12.1% in last year’s third quarter. Selling, general, and administrative expense (SG&A) was $71.1 million in the third quarter, a $0.4 million decrease over the prior year’s third quarter due to the $3.3 million gain on the property sale in Canada, partially offset by higher management information systems, legal and selling expenses. Excluding the gain, SG&A as a percentage of net sales was 12.8% in the quarter compared to 13.8% in last year’s third quarter. Operating income increased 29% to $88.6 million in the third quarter compared to $68.9 million in the prior year’s third quarter driven by higher sales and the $3.3 million gain on the property sale in Canada. Excluding the gain, operating margins expanded 140 basis points to 14.7%. Other expense decreased to $11.2 million in the third quarter, compared to $14.2 million in the prior year’s third quarter, primarily due to favorable foreign exchange gains. The effective tax rate in the current quarter was 34.7% compared to last year’s 31.7%. The current quarter rate includes a $1.3 million benefit due to the reduction of tax liabilities. Without this tax benefit, the effective tax rate in the current quarter would have been 36.4%. The effective tax rate in last year’s third quarter was favorably impacted by the net reduction of tax liabilities. Free Cash Flow and Net Debt For the first nine months of 2007, the Company reported $159 million of net cash from operations compared to $109 million in the first nine months of 2006. For the first nine months, the Company has generated approximately $123 million in free cash flow compared to $76 million in the prior period. Free cash flow is defined as net cash from operations less capital expenditures. At quarter-end, the Company had total outstanding debt of $867 million and cash of $179 million for a net debt position of $688 million. This compares to total debt of $933 million and cash of $110 million for a net debt position at December 31, 2006 of $823 million. Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as defined in the Company’s principal credit agreement, which excludes certain items, was approximately $293 million for the first nine months of 2007, a $20 million increase over the same period last year. The leverage ratio of total debt to Adjusted EBITDA for the twelve months ended September 28, 2007 was 2.3. New Product Activity On the new product front, Mr. Craigie commented, "The Company has taken a major step forward in the number of new product launches that deliver meaningful benefits to consumers. We continue to support these initiatives with increased marketing support and we have increased R&D and product development spending to support new product launches in the future.” In the third quarter, the Company launched Arm & Hammer plus OxiClean liquid and powder laundry detergent bringing the benefits of these two powerful laundry products together. In addition, the Company began shipments of concentrated liquid detergents in the southern part of the United States. Arm & Hammer® Essentials™ detergents and fabric softener sheets continue to drive incremental growth to our laundry products as does OxiClean® Spray Away™ portable instant stain remover. The Company also launched an introductory advertising campaign in the quarter to support our new Arm & Hammer® cat litter product, called Odor Alert™, with crystals that change color when activated, which began shipping in the second quarter. In personal care products, the Trojan® brand continues to achieve record market shares resulting from innovative line extensions and our new advertising campaign. The SpinBrush™ battery-powered toothbrush line maintained share leadership in the third quarter in the battery-operated toothbrush category with new products including Pro-Select™, the first and only battery-powered toothbrush with a two-speed switch that allows consumers to choose between a maximum speed "deep clean” and a lower speed "gentle massage.” Gross Margin Expansion Despite increasing commodity and energy costs, which will continue to be a factor, the Company expanded year-over-year gross margins in the third quarter. Gross margins are expected to continue to improve in the fourth quarter and in 2008. Future improvement in gross margin is expected to be driven by liquid laundry detergent compaction, manufacturing synergies from the completed OGI business integration, price increases, cost savings programs, and volume scale leverage. Outlook "Organic sales growth and marketing spending are expected to be strong in the fourth quarter of 2007. Marketing programs will be focused on our key brands and trademarks including Arm & Hammer®, Trojan®, SpinBrush™, OxiClean®, and First Response®,” said Mr. Craigie. With regard to the full year, Mr. Craigie concluded, "Due to our solid performance to date this year, the positive impact of our new product launches and the successful integration of the OGI business, we are raising our previously announced earnings per share goal of $2.34 to $2.36 to $2.42 to $2.44, including the gain on the property sale, which is equivalent to a 17% to 18% increase over 2006 results. Included in our full year earnings goal is a fourth quarter charge of approximately $0.04 per share, relating to the reorganization of our Canadian business as we continue to take actions to streamline the Company.” As previously reported, at its October 31 Board meeting, the Company declared a quarterly dividend of $0.08 per share. The dividend will be payable December 3, 2007 to stockholders of record at the close of business on November 12, 2007. This is the Company’s 427th regular quarterly dividend. Church & Dwight will host a conference call to discuss third quarter 2007 results on November 6, 2007 at 10:00 a.m. (ET). To participate, dial in at 800-599-9816, access code: 80911144. A replay will be available two hours after the call at 888-286-8010, access code: 21755373. 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. manufactures and markets a wide range of personal care, household and specialty products, under the Arm & Hammer brand name and other well-known trademarks. This release contains forward-looking statements relating, among others, to short- and long-term financial objectives, sales and earnings growth, margin improvement, marketing spending, new product introductions, the timing of new product launches, consumer demand for the Company’s products, the shift to concentrated liquid laundry detergent, the ability to realize manufacturing synergies from the integration of the Orange Glo International, Inc. business acquired in 2006, reorganization charges, increases in R&D and product development spending, and earnings per share. These statements represent the intentions, plans, expectations and beliefs of the Company, and are subject to risks, uncertainties and other factors, many of which are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. The uncertainties include assumptions as to market growth and consumer demand (including the effect of political and economic events on consumer demand), raw material and energy prices, the financial condition of major customers, and increased marketing spending. With regard to the new product introductions referred to in this release, there is particular uncertainty relating to trade, competitive and consumer reactions. Other factors, which could materially affect the results, include the outcome of contingencies, including litigation, pending regulatory proceedings, and environmental remediation. For a description of additional factors that could cause actual results to differ materially from the forward looking statements, see the Company’s quarterly and annual reports filed with the SEC, including information in the Company’s annual report on Form 10-K in Item 1A, "Risk Factors.” CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited)     Three Months Ended   Nine Months Ended (In thousands, except per share data) Sept. 28, 2007   Sept. 29, 2006   Sept. 28, 2007 Sept. 29, 2006 Net Sales $ 580,438 $ 518,578 $ 1,641,245 $ 1,419,553 Cost of sales   351,031     315,618     995,269     862,808 Gross profit 229,407 202,960 645,976 556,745 Marketing expenses 69,700 62,620 181,654 150,174 Selling, general and administrative expenses   71,092     71,451     217,014     198,706 Income from Operations 88,615 68,889 247,308 207,865 Equity in earnings of affiliates 1,797 1,877 5,817 5,277 Other income (expense), net   (11,193 )   (14,163 )   (37,348 )   (31,971 ) Income before minority interest and taxes 79,219 56,603 215,777 181,171 Income taxes 27,512 17,943 78,450 66,155 Minority Interest   (9 )   (4 )   (21 )   (1 ) Net Income $ 51,716   $ 38,664   $ 137,348   $ 115,017 Net Income per share - Basic $0.78 $0.60 $2.09 $1.78 Net Income per share - Diluted   $0.75     $0.57     $2.00     $1.71 Dividend per share $0.08 $0.07 $0.22 $0.19 Weighted average shares outstanding - Basic 65,913 64,966 65,762 64,716 Weighted average shares outstanding - Diluted   70,341     69,065     70,225     68,752 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)   (Dollars in thousands) Sept. 28, 2007   Sept. 29, 2006 Assets           Current Assets Cash, equivalents and securities $ 178,486 $ 95,813 Accounts receivable 271,802 248,606 Inventories 220,150 206,720 Other current assets   17,346     15,009 Total Current Assets   687,784     566,148 Property, Plant and Equipment (Net) 346,850 335,916 Equity Investment in Affiliates 9,985 10,180 Tradenames and other intangibles 670,818 694,076 Goodwill 688,537 684,799 Other Long-term assets   76,582     68,111 Total Assets $ 2,480,556   $ 2,359,230   Liabilities and Stockholders' Equity           Short-Term Debt $ 150,674 $ 142,726 Other Current Liabilities   311,539     304,030 Total Current Liabilities   462,213     446,756 Long-Term Debt 715,830 840,082 Other Long-Term Liabilities 273,288 237,519 Stockholders' Equity   1,029,225     834,873 Total Liabilities and Stockholders' Equity $ 2,480,556   $ 2,359,230 CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (Unaudited)       Nine Months Ended   (Dollars in thousands)   Sept. 28, 2007   Sept. 29, 2006   Net Income $137,348 $115,017   Depreciation and Amortization 43,097 38,142 Deferred Income Taxes 21,284 14,134 Net Gain on Asset (Sale)/Disposal (1,202 ) 3,842 Non Cash Compensation 8,991 7,761 Other (2,556 ) (1,668 )   Changes in Assets and Liabilities: Accounts Receivable (34,573 ) (31,327 ) Inventories (21,760 ) (22,618 ) Prepaid Expenses (525 ) 3,369 Accounts Payable and Accrued Expenses 2,811 (6,318 ) Income Taxes Payable 11,620 (1,232 ) Excess tax Benefits on Stock Options Exercised (5,509 ) (5,443 ) Other liabilities   233   (4,369 ) Net cash from operations 159,259 109,290   Additions to PP&E (36,235 ) (33,200 ) Acquisitions (211 ) (337,648 ) Proceeds from sale of assets 7,213 -- Other   (436 ) 666   Net cash (used in) investing activities (29,669 ) (370,182 )   Debt payments (net of borrowings) (66,881 ) 225,913 Payment of cash dividends (14,464 ) (12,297 ) Stock option related 15,876 15,110 Other   (246 ) (2,019 ) Net cash (used in) provided by financing activities (65,715 ) 226,707   F/x impact on cash   4,135   3,320     Net change in cash and investments   $68,010   ($30,865 )   Free cash flow(1)   $123,024   $76,090   FREE CASH FLOW = Net Cash from Operations less Capital Expenditures (1) Free cash flow is defined as net cash provided by operating activities less capital expenditures. Management views free cash flow as an important measure because it is one factor in determining the amount of cash available for debt reduction, dividends, and discretionary investment. SUPPLEMENTAL INFORMATION   Third Quarter and YTD 2007 and 2006 Product Line Net Sales   Three Months Ended Percent   9/28/2007   9/29/2006   Change   Household Products $ 262.6 $ 231.1 14% Personal Care Products   145.1   139.0   4% Consumer Domestic 407.7 370.1 10% Consumer International   105.6   93.8   13% Total Consumer Net Sales 513.3 463.9 11% Specialty Products Division   67.1   54.7   23% Total Net Sales $ 580.4   518.6   12%   Nine Months Ended Percent   9/28/2007   9/29/2006   Change   Household Products $ 749.2 $ 592.8 26% Personal Care Products   417.1   412.4   1% Consumer Domestic 1,166.3 1,005.2 16% Consumer International   288.7   249.1   16% Total Consumer Net Sales 1,455.0 1,254.3 16% Specialty Products Division   186.2   165.3   13% Total Net Sales $ 1,641.2 $ 1,419.6   15% The following discussion addresses the reconciliations in this press release that reconcile non-GAAP and other measures used in this press release to the most directly comparable GAAP measures: Organic Growth The press release provides information regarding organic growth, namely net sales adjusted to reflect the impact of acquired businesses and the effect of foreign exchange changes. Management believes that the presentation of organic growth is useful to investors because it enables them to assess, on a consistent basis, sales of products that were marketed by the Company during the entirety of relevant periods. In addition, the exclusion of the effect of foreign exchange adjustments is useful to investors because currency fluctuations are out of the control of, and do not reflect the performance of management.   Three Months Ended   Nine Months Ended 9/28/2007 9/28/2007     Reported Growth 12% 15%   Less: Acquisitions 5% 11%   FX 1% 1% Organic Growth 6% 3% Adjusted EBITDA and Free Cash Flow Management believes that Adjusted EBITDA is an important measure to investors because it indicates the Company’s ability to generate liquidity in a fashion that will enable it to satisfy an important financial covenant in the Company’s principal credit agreement. Set forth below is a reconciliation of the Company’s Adjusted EBITDA to net cash flow provided by operating activities, the most directly comparable GAAP measure. Free cash flow is defined as net cash provided by operating activities less capital expenditures. Management views free cash flow as an important measure because it is one factor in determining the amount of cash available for dividends and discretionary investment.     Adjusted EBITDA   Reconciliation of Net Cash Provided By Operating Activities to Adjusted EBITDA Nine Months Ended Sept. 28, 2007 (Dollars in Millions) Net Cash Provided by Operating Activities $ 159.3 Interest Expense 43.9 Current Portion Income Tax Provision 57.2 Change in Working Capital & Other Liabilities 42.2 Investment Income (5.1 ) Tax Benefit on Stock Options Exercised 5.5 Andes Trading Legal Settlement (10.4 ) Other   0.5 Church & Dwight Adjusted EBITDA $ 293.1   Net Cash Provided by Operating Activities $ 159.3 Less: Capital Expenditures   (36.2 ) Free Cash Flow $ 123.1