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Giverny Capital's Podium of Errors - Church & Dwight

March 25, 2014 | About:

Church & Dwight was first known for its Arm & Hammer brand, the baking soda often placed in our refrigerators to capture odors. About 15 years ago, the company decided to develop an ambitious growth plan by developing new products for Arm & Hammer and also by acquiring new brands. In 2001, the company purchased Carter-Wallace which has many brands including Trojan (the famous condoms), Nair (to remove superfluous body hair) and First Response (the pregnancy test).

As soon as 2003, I could observe the success of this strategy. In only five years, EPS increased from $.26 to $.62 and the stock was trading at $11 (or a P/E of 19x). I hoped that the stock would drop to a more interesting level which never really happened. In 2013, the company generated $2.89 in EPS, meaning that the company grew at an annualized rate of 17% over the course of the last decade. The stock is now trading at $61, a gain of 455% in 10 years (19% annually). And the P/E increased rather than decreased.

This was a great error because I understood the nature of the company’s product and brands (allow me to make a juvenile joke by mentioning that Trojan is an ideal repeat business). Additionally, after following the company closely for five years, I also realized by 2003 that the company was led by a brilliant team dedicated to serving and creating wealth for its shareholders. I don’t have any excuses to even mention and this error is certainly in the gold camp.

Source: Giverny Capital Annual Letter 2013

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