CHD Q2 2025: Sees 0–2% Organic Revenue Growth Amid $50M Tariff Drag
- Robust International Growth: Management highlighted that international business is expanding with mid-to-high single-digit growth, driven by strategic acquisitions like HERO, which now operates in 50 countries within 12 months, substantially underpinning the bull case for long‑term revenue expansion.
- Resilient Brand Performance & Proactive Pricing: Multiple power brands are gaining share despite a volatile consumer environment, with stable promotional execution and targeted pricing actions to counteract tariffs and inflation—helping maintain margins and drive organic sales growth.
- Strong Innovation & Strategic Portfolio Management: A continued emphasis on innovation is fueling roughly half of organic growth, while the proactive review of underperforming segments (like the vitamin business) is paving the way for strategic alternatives that could further enhance growth and shareholder value.
- Tariff and Inflation Pressures: The company highlighted mounting input cost pressures due to tariffs and inflation, which have already led to margin contraction and could grow worse, posing headwinds for future profitability.
- Product Recall Impact: The negative pricing impact from the ZicamORA gel swab recall contributed to gross margin pressure and could signal further downside if similar issues arise.
- Uncertainty in the Vitamin Business: Ongoing underperformance and the strategic review of the vitamin business create uncertainty, as the company is considering divestiture, joint ventures, or structural changes, which may negatively affect overall growth and execution.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Organic Revenue Growth | FY 2025 | 0% to 2% | 0% to 2% | no change |
Adjusted EPS Growth | FY 2025 | 0% to 2% | 0% to 2% | no change |
Gross Margin | FY 2025 | Contraction of 60 bps | Contraction of 60 basis points | no change |
Cash Flow from Operations | FY 2025 | $1.05 billion | $1.05 billion | no change |
Capital Expenditures | FY 2025 | Approximately $130 million | Approximately $130 million | no change |
Marketing Expense | FY 2025 | 11% of net sales | 11% | no change |
Effective Tax Rate | FY 2025 | 23% | 23% | no change |
Adjusted SG&A | FY 2025 | Expected to increase | no current guidance | no current guidance |
Charges for FLAWLESS & Waterpik | FY 2025 | $60–80 million, two‑thirds noncash | no current guidance | no current guidance |
Organic Sales Growth | Q2 2025 | Approximately negative 2% to flat | no current guidance | no current guidance |
Adjusted EPS | Q2 2025 | $0.85 per share, 9% decrease | no current guidance | no current guidance |
Gross Margin Impact (Tariff) | Tariff Impact | 40–50 bps negative impact | no current guidance | no current guidance |
EPS Impact (Tariff) | Tariff Impact | Approximately $0.09 | no current guidance | no current guidance |
Reported and Organic Sales Growth | Q3 2025 | no prior guidance | Approximately 1% to 2% | no prior guidance |
Adjusted Gross Margin | Q3 2025 | no prior guidance | Contraction of approximately 100 bps | no prior guidance |
Marketing Expense | Q3 2025 | no prior guidance | Expected to be higher sequentially | no prior guidance |
Adjusted EPS | Q3 2025 | no prior guidance | $0.72 per share, 9% decrease | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
International Growth | Reported solid organic growth near 6% with discussion of macro pressures impacting the segment | Described as achieving mid single-digit growth driven by strong local brands and acquisitions, with an explicit focus on expansion in Europe and China | Continued focus on international expansion with increased emphasis on acquisitions boosting growth |
Strategic Acquisitions | Emphasized M&A as a top priority with large financial capacity and plans for both domestic and international opportunities, including potential deals worth around $6 billion | Highlighted the closing of the Touchland acquisition and active pursuit of further acquisitions in Europe and China, reinforcing the commitment to strategic deals | Consistent commitment to acquisitions with added clarity from recent deal closings in Q2 |
Brand Performance | Noted a 1.2% organic sales decline but highlighted volume share gains across several brands and improvements despite offsetting retail destocking impacts | Reported share growth in five out of seven power brands with detailed performance metrics across multiple categories (e.g., ARM & HAMMER, TheraBreath, Batiste) | Improved narrative with more detailed performance reporting and positive share gains in Q2 |
HERO Market Share Gains | Discussed HERO’s 13% consumption growth and a market share increase to 22%, emphasizing household penetration as a key growth driver | Reported similar market share of 22% with consumption growth at 11.4% and new expansion into the body care segment through product innovation | Consistency in maintaining market position with slight moderation in consumption growth and expansion into new segments |
Tariff, Inflation, and Cost Management | Focused on aggressively mitigating tariff exposure (e.g., reducing a projected $190 million exposure to a net impact of $30 million) and countering commodity inflation, which impacted gross margin | Addressed tariffs as largely stable with minor increases, managed alongside inflation through productivity and strategic pricing, and noted recovering consumer confidence alongside modest category growth improvements | Shifted from an aggressive mitigation strategy to a more balanced approach combining inflation management and recovering consumer sentiment in Q2 |
Portfolio Optimization and Capital Allocation | Discussed divesting non-core businesses (e.g., FLAWLESS and Waterpik showerhead), a review of the vitamins business, and maintained M&A as the primary focus while keeping share repurchases as a backup | Outlined portfolio exits including FLAWLESS, Spin Brush, and Waterpik showerhead, a continued review of the vitamin business, executed a $300 million share repurchase, expanded revolving credit, and reinforced M&A focus | Consistent portfolio pruning with enhanced capital allocation steps and improved financial flexibility in Q2 |
Innovation as a Growth Driver | Emphasized innovation in the vitamins and laundry segments (e.g., PowerPlus, Deep Clean) with plans for incremental innovation and value messaging to drive growth | Reiterated innovation as a foundational growth driver contributing about 50% of organic growth, though its growth impact moderated (from approximately 2% to 1.2–1.3%), with added focus on trial and sampling programs | Continued focus on innovation with a moderated growth contribution in Q2 due to economic pressures |
Vitamin Business Underperformance and Strategic Uncertainty | Highlighted underperformance in the gummy vitamins segment (down 19%) with strategies focused on innovation, reformulation, and a postponed evaluation period post Q2 | More explicitly disclosed underperformance, with gummy vitamins down about 25% and a detailed strategic review exploring divestiture, joint ventures, or restructuring, while still supporting core brands | Increased clarity and a broader set of strategic options in Q2, reflecting ongoing uncertainty and decisive planning |
Product Recall Impact and Quality Control Risks | Not mentioned (N/A) | Noted a product recall of Zicam ORA gel swabs causing a 30 basis point decrease in adjusted gross margin and factored into full-year EPS guidance, with no additional quality control discussion | New topic emerging in Q2 with a one-off financial impact and limited discussion on broader quality risks |
Domestic Market Challenges | Reported a 3% domestic organic decline driven by retail destocking, weakened consumer spending, and slowing category consumption, with falling outperformance in growth | Addressed ongoing retail destocking (approximately a 100 basis point drag) but noted improvement in category consumption (around 2.5%) and recovering consumer confidence as tariff policies stabilized | Signs of moderation in domestic challenges, with partial recovery in category consumption and consumer sentiment in Q2 despite persistent headwinds |
-
Vitamin Strategy
Q: What are vitamins’ exit options?
A: Management is reviewing its vitamin business with three possible paths—divestiture, joint venture, or restructuring—to address mixed results while noting early green shoots in innovation. -
Retail Destocking
Q: How severe is retailer destocking?
A: They estimate a 100 basis point drag in Q2 from retail destocking, expecting this headwind to be minimal going forward. -
Organic Sales Outlook
Q: What organic growth rate is expected?
A: The guidance is for 0–2% organic revenue growth, with back‐half conditions supporting a favorable comp resulting in approximately 2.5% growth in later months. -
Tariff Impact
Q: Which regions drive tariff costs?
A: Tariff challenges are now focused on Korea, Thailand, Vietnam, and Europe; management is proactively combating this, keeping the annual run rate impact near their revised estimate of about $50M. -
International Growth
Q: How are international brands performing?
A: International business is growing in mid-to-high single digits, bolstered by brand expansions—Hero now operates in 50 countries—demonstrating strong global momentum. -
Evergreen Model
Q: Will organic sales return to normal?
A: Despite this year’s softer performance, management expects the current aberration to be temporary and remains confident in their long-term evergreen model of roughly 3% annual growth. -
Promotion Strategy
Q: How are promotions impacting net pricing?
A: Promotions, especially in laundry, remain historically stable at low 30% levels, with targeted pricing adjustments planned to support net price realization without undue discounting. -
VMS Separation
Q: Can the VMS business stand alone?
A: The VMS unit operates within its own dedicated facilities and functions, though it incurs some allocated overhead—similar to past divestitures—making a standalone sale feasible with proper cost adjustments. -
Batiste Performance
Q: How will Batiste rebound?
A: Although Batiste consumption dropped almost 7% in Q2 due to temporary supply issues and competitive pricing moves, management is optimistic about recovery through new innovations and adjusted promotional strategies.
Research analysts covering CHURCH & DWIGHT CO INC /DE/.