Church & Dwight's Q1 Struggles: Navigating Retail De-stocking, Tariffs, and Slowing Demand

Church & Dwight (CHD), a consumer goods giant behind brands like ARM & HAMMER, THERABREATH, and BATISTE, reported mixed results for its Q1 2025 earnings, with key challenges stemming from retailer de-stocking, weakening consumer demand, and tariff-related pressures. While the company has taken aggressive steps to mitigate these headwinds—such as pruning its portfolio and adjusting supply chains—the outlook remains tempered by a sluggish U.S. consumer environment and lingering macroeconomic uncertainty.

The De-stocking Drag

Organic sales fell 1.2% in Q1, with a 300 basis point decline attributed to retailer de-stocking—a critical issue for CHD’s Domestic Division, where sales dropped 3.0% organically. Retailers, grappling with soft demand, reduced inventories, particularly in categories like vitamins and household products. This inventory correction, coupled with weaker U.S. consumer spending, forced the company to slash its full-year organic sales guidance to 0%–2% growth, down from a prior 3%–4% outlook.

The de-stocking impact is not expected to reverse quickly. Management noted that U.S. category growth slowed to 1.5% in Q1, down from 2.5% in late 2024, with April 2025 consumption turning negative (-1%). This environment has left CHD’s Q2 2025 guidance cautious: organic sales are projected to decline -2% to flat, while adjusted EPS is expected to fall 9% year-over-year to $0.85.

Category Growth Stalls, But Innovation Shines

While broader category trends faltered, CHD’s core brands demonstrated resilience:
- ARM & HAMMER Laundry Detergent: Grew 3.4% in consumption versus a flat category, boosting market share to 14.7%. Unit-dose variants surged 27%, driving a 120-basis-point share gain.
- THERABREATH Mouthwash: Surged 26% in consumption (vs. flat category growth), capturing 20.3% market share, with household penetration at 10.5%.
- HERO Acne Care: Consumption jumped 13% amid a 1.1% category decline, gaining 280 basis points in share to 22%.

However, the Gummy Vitamin business struggled, with consumption down 19% despite a 4.8% growing category. This highlights execution challenges even in expanding markets.

Tariff Mitigation: Pruning for Profitability

The $190 million annual tariff exposure from U.S.-China trade tensions has been a persistent headwind. CHD is tackling this through strategic moves:
- Portfolio Restructuring: Plans to sell or close low-margin businesses (Flawless, Spinbrush, Waterpik showerheads), which generate $150 million in sales but drag on profitability. This will result in a Q2 non-cash charge of $60–80 million, but free up resources for core brands.
- Supply Chain Adjustments: Waterpik flossers will no longer be sourced from China, reducing tariff exposure. These actions are expected to mitigate 80% of the tariff burden, narrowing the net impact to $30 million in 2025 and $40 million in 2026.

Financial Outlook: Scaling Back Ambitions

The revised full-year outlook reflects these challenges:
- EPS Growth: Trimmed to 0%–2% (from 7%–8%), with Q2 EPS down 9%.
- Cash Flow: Reduced to $1.05 billion (vs. prior expectations), as lower earnings and working capital headwinds offset strong international growth (5.8% organic sales in Q1).

RBC’s Take: Sector Perform Amid Uncertainty

RBC Capital lowered its price target to $100 from $105, citing "greater-than-expected challenges" but acknowledging management’s "effective tariff mitigation." The firm’s Sector Perform rating reflects cautious optimism about CHD’s ability to stabilize through innovation (e.g., new BATISTE Light and HERO Mighty Patch Body) and cost discipline.

Conclusion: A Tale of Pruning and Persistence

Church & Dwight’s Q1 results underscore the precarious balance between short-term headwinds and long-term strategies. While de-stocking and category slowdowns have dented near-term growth, the company’s proactive moves—divesting underperforming businesses, reconfiguring supply chains, and prioritizing high-margin brands—position it to weather the storm.

Key data points reinforce this outlook:
- Market Share Gains: 9 of 14 major brands gained share in Q1, with over 80% of business showing volume growth.
- International Resilience: 5.8% organic growth in international markets, driven by HERO and THERABREATH.
- Cash Flow Strength: $10.75 billion in cash provides flexibility for acquisitions and R&D, despite revised forecasts.

Investors should remain cautious on near-term EPS and sales trends but view CHD’s restructuring as a strategic advantage. If the U.S. consumer recovers—and category growth stabilizes—CHD’s focus on innovation and core brands could drive a rebound by late 2025. For now, the stock’s valuation (trading at ~18x 2025 EPS) balances these risks and opportunities.

In summary, Church & Dwight’s Q1 struggles are real, but its actions to mitigate tariffs and sharpen its portfolio suggest a path to stabilization. The next critical test will be whether consumer demand rebounds—and whether new products like ARM & HAMMER POWER SHEETS™ can turn the tide in sluggish categories.