{ "docId": "019dd923-622c-750b-8b98-c3e7825e1948", "docSlug": "8b6a62f49fba", "documentTitle": "Church & Dwight Co., Inc. (CHD)", "authorId": "54_Spruce_Point_Capital", "authorName": "Ben Axler", "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2019-09-05 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 78, "pageCount": 92, "prevPage": 77, "nextPage": 79, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 15, "notes": "Uses a CEO quote to contrast with the accounting reality shown in the table.", "elementsJson": [ "headline_text", "paragraph", "callout_box", "data_table", "screenshot", "kpi_table" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-c3e7825e1948/78", "deckHref": "/decks/019dd923-622c-750b-8b98-c3e7825e1948", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-c3e7825e1948.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-c3e7825e1948#slide-78", "components": [ { "bbox": null, "kind": "callout", "text": "CHD management did not call out an inventory accounting change as a 10bp benefit to gross profit in 2018.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-1ac2-71b6-bf57-0e834b8d4eca", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.21, "w": 0.49, "x": 0.48, "y": 0.735 }, "kind": "image", "text": "2018 Annual Incentive Plan Performance Ranges table", "attrs": null, "subkind": "screenshot", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f1254160-912d-43bd-9100-2291abdf3bb0", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "metric", "text": "Gross Profit: $1,836.8", "attrs": null, "subkind": "primary", "toolName": "Quantification", "toolSlug": "quantification", "confidence": null, "componentId": "019dd953-1ac2-71b6-bf57-143cd98d78a8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.94, "x": 0.03, "y": 0.16 }, "kind": "paragraph", "text": "CHD management did not call out an inventory accounting change as a 10bp benefit to gross profit in 2018. The timing of the change in 2018 is curious, given that headline gross profit contracted 140bps. Yet, management still exceeded its threshold gross profit level for its annual incentive compensation calculation with unexplained adjustments. By our calculation, management failed to meet the target threshold by adjusting for the accounting change.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "656c78a4-46a1-4652-b664-d3c0eb9b7762", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.21, "w": 0.45, "x": 0.03, "y": 0.735 }, "kind": "paragraph", "text": "On April 1, 2018, the Company changed its method of accounting for inventories from last-in-first-out (\"LIFO\") to first-in-first-out (\"FIFO\") for the approximately 17% of consolidated inventory not previously valued using FIFO. Substantially all of the Company's SPD segment inventory, as well as domestic inventory sold primarily under the ARM & HAMMER trademark in the Consumer Domestic segment, was previously determined using LIFO. After this change, the value of all of the Company's inventory was determined by the FIFO method. The Company believes this change is preferable as the predominant method to value inventory has been FIFO, which will provide a uniform costing method across all inventory. Prior financial statements have not been retroactively adjusted due to immateriality. The cumulative effect of the change in accounting principle of approximately $4.0 pre-tax was recorded as a decrease to cost of goods sold for the quarter ending June 30, 2018.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "775c9618-8999-4f3c-b0c8-fff3a27ddca4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.82, "x": 0.16, "y": 0.295 }, "kind": "quote", "text": "We're a very simple compensation structure: sales gross, margin, cash from operations and EPS [been] like that for years, 25% each. That's for our annual bonus. By having those four, particularly gross margin, it creates financial literacy within the company. Given all employee bonus[es], and when one component is gross margin, the natural thing to ask is what's gross margin and how do I get it?", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "54bcc0b8-631b-4a48-9fd1-cc7f4981964e", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "We’re a very simple compensation structure: sales gross, margin, cash from operations and EPS [been] like that for years, 25% each. That’s for our annual bonus. By having those four, particularly gross margin, it creates financial literacy within the company. Given all employee bonus[es], and when one component is gross margin, the natural thing to ask is what’s gross margin and how do I get it? — CEO DB Conf June 11, 2019", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-1ac2-71b6-bf57-1195cca0cd36", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.15, "x": 0.03, "y": 0.955 }, "kind": "source-note", "text": "Source: 2018 10-K, p. 55", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5ecdaa79-ae1f-4bfc-a70c-17524851ae15", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.2, "x": 0.48, "y": 0.955 }, "kind": "source-note", "text": "Source: 2018 Proxy Statement, p. 46", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "bc4804f0-3c3b-404a-8820-057249a7bf4c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.21, "w": 0.94, "x": 0.03, "y": 0.415 }, "kind": "table", "text": "Table comparing reported vs pro forma gross profit and bonus thresholds.", "attrs": null, "subkind": "data", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "baf15b25-0439-4837-b812-b9ed58ec097c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.65, "x": 0.31, "y": 0.03 }, "kind": "title", "text": "Gaming The Bonus Targets (Example: Gross Profit)", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "6cdac065-38f3-4248-ba45-ff57b9cb3349", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "ceo-quote-contradiction", "slug": null, "matchId": "f6508171-b7f7-4cc6-b8be-fdc728a69b76", "evidence": "Contrasting CEO statement on bonus structure with accounting manipulation data.", "confidence": 0.9 } ], "arcBeats": [], "loops": [ { "to": 92, "from": 1, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "d8d41695-ad33-43d2-9478-d227476d9e68", "evidence": "The overall thesis implies that failing to act on Spruce Point's analysis could lead to significant financial losses for investors holding onto CHD stock.", "position": 2, "objective": "The cost of not selling CHD", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }