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Prices to Rise for Household Staples -- WSJ

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02/11/2019 | 02:48am EDT

By Aisha Al-Muslim

Makers of household staples from diapers to toilet paper are set to raise prices again this year after already hiking prices in 2018, hoping to offset higher commodity costs and boost profits.

Church & Dwight Co. recently increased prices for about one-third of its products, including Arm & Hammer cat litter and baking soda, and some OxiClean cleaning products.

"The good news is that competitors are raising [prices] in those categories as we speak," Church & Dwight Chief Executive Matthew Farrell said on a conference call last week when the company reported higher quarterly sales and lower profits.

The company is now discussing more price increases with retailers, including for personal-care products, Mr. Farrell told analysts Tuesday.

Church & Dwight is one of several consumer-goods companies, including Procter & Gamble Co., Colgate-Palmolive Co. and Clorox Co., that have raised prices -- or pledged to do so -- in response to higher costs of raw materials and transportation, as well as unfavorable foreign-currency swings.

As a result, consumers are being asked to pay more for Pampers and Huggies diapers, Bounty and Viva paper towels, Charmin and Scott toilet papers and Arm & Hammer baking soda, among other products.

For much of the past decade, price cuts have been far more common than price increases as U.S. companies were mostly reluctant to test consumers' spending power and brand loyalty in a fragile economic recovery.

When companies tried to raise prices, "they better have had a uniquely strong innovation or be willing to lose market share to competitors," said Sanford C. Bernstein analyst Ali Dibadj.

Adding to the challenge of raising prices is that more shoppers have been switching to store-branded paper towels and discount detergents, or opting for online upstarts such as Dollar Shave Club. Traditional brands have also been under pressure from retailers like Walmart Inc. and Amazon.com Inc. to keep prices low, pushing the manufacturers to focus on lowering costs in their supply chains or paring back advertising.

After trying to combat weak demand by lowering prices, the industry's biggest player, P&G, shifted its course last summer, announcing it would charge more for several of its brands, and several rivals followed suit.

The recent price increases are largely playing out in the companies' favor, Wells Fargo Securities analyst Bonnie Herzog said.

Sales volumes of household and personal products in the U.S. declined 1.4% in January, according to Bernstein's analysis of data from Nielsen. Dollar sales of those products rose 0.7% in the period, Bernstein said, indicating that the price increases, on balance, are padding the bottom lines at consumer-goods companies.

American workers are beginning to enjoy pay raises, with the tight labor market recently delivering the biggest annual wage increases since the recession ended. Average hourly earnings for private-sector workers rose 2.9% in January from a year earlier -- the largest such jump since June 2009. The U.S. also has continued to add jobs as a multiyear economic expansion continues.

But even in a strong U.S. economy, there are limits to how much brands can charge without losing some customers.

Tyler Aftab, a 35-year-old teacher in Green Brook, N.J., said he noticed at his local Costco last week that Charmin and Bounty, which were normally under $18 last year, were both being sold for about $23. Glad trash bags, normally under $15, were listed at about $19.

Mr. Aftab bought the Glad kitchen bags discounted for under $16. He opted to buy Costco's Kirkland Signature brand of paper towels instead of Bounty. He decided to not buy any toilet paper.

"I am a fairly loyal consumer of Charmin, but I will not pay $23 for the pack," Mr. Aftab said. "I will wait until those prices come down."

Clorox last year raised prices on about half of its portfolio, including its Glad trash bags and plastic wraps, which the company said helped it boost profit margins in the latest quarter. Yet Glad's competitors didn't follow with their own price increases as executives had expected, contributing to a sales decline in the period. To defend the brand's market share, the company would boost spending on promotions in the near term, executives said last week.

Clorox said sales rose in other categories like cat litter and its namesake bleach, where it also raised prices recently.

CEO Benno Dorer last week voiced confidence in Clorox's pricing strategy over the long term, and the company expects to invest in new products. Higher prices for Kingsford charcoal and Burt's Bees products went into effect in December and February, respectively.

Starting in September, P&G began increasing prices on a rolling basis from around 4% to as much as 10% on various products, such as Pampers, Bounty, Charmin and Puffs brands. The increases will be mostly in place this month.

The company in January reported that the higher prices led to an increase in organic sales, a closely watched metric that strips out currency moves, acquisitions and divestitures. The company raised its organic sales target for the year, while P&G's finance chief, Jon Moeller, told analysts that higher pricing may affect sales volume.

Kimberly-Clark Corp. executives said last month that they expect volumes to suffer, particularly with tissue products, after the company implemented price increases averaging in the mid-to-high single digits on a percentage basis. Still, the company, which makes Cottonelle and Scott bathroom tissue and Kleenex facial tissues, predicted organic sales should increase 2% for 2019.

It used to be easier for these companies to raise prices, Mr. Dibadj said. "In fact, 60% to 70% of commodity price increases were pushed through to the customer. Now, it's less, given retailers have increased power and consumers have figured out the art of trading-down."

Companies that don't have a mix of high- and low-price products find it harder to pull off price increases, said Mr. Dibadj, because they risk losing price-sensitive customers for good. "The big fear is your pricing is too high and that consumers are just not going to come back to your brand," he said.

Write to Aisha Al-Muslim at aisha.al-muslim@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CHURCH & DWIGHT CO. -0.22% 73.28 Delayed Quote.11.44%
COLGATE-PALMOLIVE COMPANY -0.22% 68.86 Delayed Quote.15.94%
KIMBERLY-CLARK -0.97% 124.4 Delayed Quote.9.18%
LONDON COFFEE -1.07% 1765 End-of-day quote.0.00%
PROCTER & GAMBLE COMPANY 0.51% 103.69 Delayed Quote.12.80%
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Financials ($)
Sales 2019 4 401 M
EBIT 2019 857 M
Net income 2019 621 M
Debt 2019 1 697 M
Yield 2019 1,24%
P/E ratio 2019 29,68
P/E ratio 2020 27,34
EV / Sales 2019 4,49x
EV / Sales 2020 4,22x
Capitalization 18 061 M
Duration : Period :
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Technical analysis trends CHURCH & DWIGHT CO.
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus HOLD
Number of Analysts 22
Average target price 68,8 $
Spread / Average Target -6,3%
EPS Revisions
Matthew Thomas Farrell President, CEO & Non-Independent Director
James R. Craigie Non-Executive Chairman
Rick Spann Executive Vice President-Global Operations
Richard A. Dierker Chief Financial Officer & Executive Vice President
Carlos G. Linares Executive VP-Global Research & Development
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