Church & Dwight Q2 2025: Profit Squeeze and Strategic Brand Exits

Church & Dwight, the company behind a host of well-known household and personal care brands like ARM & HAMMER®, OXICLEAN®, and BATISTE®, recently released its financial results for the second quarter of 2025. In this post, we'll dive into the numbers from its latest 10-Q filing to understand the key trends and strategic shifts shaping the company's performance.

The second quarter reveals a company navigating significant headwinds. While sales held relatively steady, profitability took a noticeable hit. Net sales for the quarter came in at $1.51 billion, a slight 0.3% decrease from the same period last year. However, net income fell more sharply, dropping 21.6% to $191 million, or $0.78 per diluted share, down from $0.99 a year ago.

To see how the company's revenue flows through its costs to arrive at its final profit, the following diagram illustrates the income statement for the first six months of 2025.

A key factor behind the profit decline is a drop in gross margin, which fell from 47.1% to 43.0%. This means the company is keeping less profit from each dollar of sales after accounting for the cost of the goods it sells. The reasons for this are multifaceted, stemming from both internal strategic decisions and external market pressures.

Pruning the Portfolio for Growth

A major story from this filing is Church & Dwight's decision to streamline its brand portfolio. On May 1, 2025, the company announced it is exiting the Flawless, Spinbrush, and Waterpik showerhead businesses. While these businesses generated approximately $170 million in annual sales in 2024, the company is moving to sharpen its focus on its higher-growth "power brands."

This strategic pivot came with a cost. The company recorded a pre-tax charge of $51 million in the second quarter related to these exits, primarily for asset impairments and inventory reserves. This one-time charge was a significant contributor to the quarter's lower profitability. Furthermore, the company is conducting a strategic review of its vitamin business, which includes the VITAFUSION® and L’IL CRITTERS® brands, signaling that more changes could be on the horizon.

Navigating a Tough Market

Beyond its internal restructuring, Church & Dwight is facing a challenging external environment. Management highlighted several key risks:

• Tariffs: The company is grappling with the financial impact of U.S. trade policies, projecting a potential gross cost of approximately $60 million from tariffs over the next twelve months. In response, it is actively shifting its supply chain, notably by moving the production of its Waterpik water flossers out of China to mitigate these costs.
• Consumer Spending: Persistent inflation is causing consumers to pull back on discretionary purchases, which impacts sales of products like water flossers.
• Segment Performance: The impact of these challenges is most visible in the Consumer Domestic segment, the company's largest division. Its operating income fell by $72.3 million, driven by the business exit costs and higher manufacturing expenses. In contrast, the Consumer International segment was a bright spot, with sales growing 5.3%, led by strong performance from brands like HERO® acne treatments and THERABREATH® mouthwash in markets outside the U.S.

Financial Health and Capital Allocation

Despite the dip in profits, the company maintains a solid financial position with $923 million in cash. It is also actively returning capital to shareholders. In May 2025, Church & Dwight initiated a $300 million accelerated share repurchase (ASR) program, a move that suggests management's confidence in the company's long-term value. An ASR is a method for a company to buy back a large number of its shares more quickly than through open-market purchases.

In conclusion, Church & Dwight's Q2 2025 results paint a picture of a company in transition. It is making tough but necessary decisions to prune its portfolio and concentrate on its strongest brands. While these moves, combined with external pressures like tariffs and cautious consumer spending, are impacting short-term profitability, the goal is to create a stronger, more focused company for the future. The key for observers will be to watch how effectively these strategies are executed and whether the renewed focus on its core brands can drive a return to margin expansion and growth.