Church & Dwight (CHD) Q4 2025 earnings review
Addition by Subtraction: Portfolio Cleanup Sets Stage for 2026
Church & Dwight closed 2025 with a mixed quarter that highlights why their recent portfolio moves were necessary. While Adjusted EPS grew 11.7% to $0.86 (beating estimates), Organic Sales growth slowed significantly to 0.7%, missing the ~1.5% guidance. The culprit was the now-divested Vitamin business and softer category trends. However, the narrative is bullish: with VMS sold and low-margin businesses exited, management guides for a resurgence in 2026 with 3-4% organic growth and continued margin expansion. The 'bad bank' assets are gone; now the core must perform.
🐂 Bull Case
The sale of the VMS (Vitamins) business closed Dec 31, 2025. This segment was a persistent drag on growth (down double-digits in prior quarters). Its removal instantly improves the corporate growth profile, evidenced by the 3-4% organic outlook for 2026.
Despite inflation, Adjusted Gross Margin expanded 90 bps to 45.5% in Q4. Management guides for another 100 bps expansion in 2026, driven by productivity and a mix shift toward premium brands like HERO and THERABREATH.
🐻 Bear Case
The core Domestic Consumer segment posted negative organic growth (-0.1%) in Q4, with volumes down 0.7%. This is a sharp deceleration from the +2.3% organic growth seen in Q3, suggesting the core US consumer is weakening.
Much of the positive narrative relies on recent acquisitions (TOUCHLAND, HERO) and International markets. The legacy household portfolio faces pressure from private label and destocking, raising questions about organic health excluding M&A.
⚖️ Verdict: 🟢
Bullish. While the Q4 top-line miss is a concern, the strategic execution is excellent. By disposing of the dragging VMS business and exiting low-margin lines, CHD has engineered a higher-quality P&L for 2026. The guidance for 3-4% organic growth and +100bps margin expansion suggests the 'Evergreen Model' is back on track.
Key Themes
Portfolio Transformation Complete
The divestiture of VMS (Vitamins) and the exit of Flawless/Spinbrush/Waterpik showerheads creates a 'New CHD.' These exits removed ~$400M in lower-quality revenue. The result is visible in the 2026 guidance: reported sales will drop (-0.5% to -1.5%), but earnings quality and organic growth (3-4%) will improve significantly.
Domestic Engine Stalls
Reversing. After showing signs of life in Q3 (+2.3%), Domestic Organic Sales fell back into negative territory (-0.1%) in Q4. Volume was negative (-0.7%) despite higher marketing spend. This volatility indicates that the legacy US portfolio (Laundry, Litter) remains under pressure from a cautious consumer.
International Outperformance
Stable/Accelerating. International remains the consistent growth driver, posting +3.6% organic growth in Q4 and +5.5% for the full year. Success is broad-based, driven by the global rollout of acquired power brands like HERO and THERABREATH. This diversification is critical as the US market falters.
Gross Margin Resilience
Accelerating. Adjusted Gross Margin expanded 90 bps in Q4 to 45.5%, beating the outlook by 140 bps. This was achieved despite inflation and tariff headwinds, proving that productivity programs and positive mix shift (exiting low-margin goods, growing premium Personal Care) are working.
Innovation Pipeline
Management highlighted 2026 launches to support the 3-4% growth target. Notable items: THERABREATH entering the toothpaste category (high risk/high reward against incumbents), TROJAN G.O.A.T. (new material tech), and HERO expanding into body care. New products are expected to drive half of organic growth.
Other KPIs
Beat. Up 11.7% YoY. Quality of earnings is improving as margin expansion drives the bottom line faster than revenue. FY26 guidance implies continued leverage with 5-8% growth.
Stable. Up 5.1% YoY. Strong cash generation ($1.2B vs $737M Net Income) confirms high earnings quality. Allowed for aggressive capital allocation: $900M in buybacks and $287M in dividends during 2025.
Invested heavily in Q4 (up from 12.3% in Q3 and 10.4% in Q2) to drive momentum into 2026. The fact that margins expanded despite this heavy spend is a positive signal for pricing power and cost control.
Guidance
Accelerating significantly vs 2025's 0.7%. This implies a return to the company's long-term algorithm. Key drivers: Volume growth, new product launches, and the absence of the VMS drag.
Accelerating vs 2025's 2.6%. Growth is weighted to the second half ($0.92 in Q1 implies flat/low growth initially). Driven by +100 bps gross margin expansion.
Accelerating. Would push margins to ~46.2%. Drivers: Higher volume, productivity, and mix benefit from acquisitions/divestitures offsetting inflation.
Accelerating vs Q4's 0.7%. Suggests management sees immediate improvement in trends post-divestiture.
Key Questions
Domestic Volume Visibility
Domestic organic growth turned negative (-0.1%) in Q4 after a strong Q3. With volume down 0.7%, what specific indicators give you confidence in hitting 3% organic growth in Q1 2026? Is this purely math from the VMS exit, or is the core portfolio improving?
TheraBreath Toothpaste Strategy
Entering the toothpaste category puts you against massive incumbents (Colgate, P&G) with deep pockets. How does the marketing strategy differ here compared to the mouthwash category, and what share capture is baked into the 2026 guidance?
Tariff Mitigation Update
You mentioned portfolio actions would mitigate tariff impacts. With the exits now finalized, is the remaining tariff exposure fully priced into the +100bps margin expansion guide, or are there lingering risks if rates increase further?
Touchland Integration
Touchland was cited as a driver for Q4 reported sales. Can you break down its organic contribution expected for 2026, and are you planning to expand it into mass retail or keep it prestige?