Clorox Beats, Guides 2012 and 2013 - Analyst Blog

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Clorox Corporation ( CLX ) posted third-quarter 2012 earnings per share of $1.05 compared with $1.03 earned in the prior-year quarter. However, considering foreign exchange impact quarterly earnings came in at $1.04 per share. The earnings in the quarter were also above the Zacks Consensus Estimate of $1.03.

On a reported basis, including one-time items, the company reported earnings per share of $1.01 versus $1.09 reported in the year-ago quarter.

During the quarter, the company's earnings benefited from the ongoing cost-saving initiatives and price increases, while higher raw material, manufacturing and logistics costs, poor product and country mix, and spends on Information Technology (IT) systems and research & development (R&D) facilities were minor deterrents.

Clorox's net sales during the quarter were up 7% year over year to $1,401 million from $1,304 million in the year-ago quarter, driven by volume growth, contributions from new businesses acquired earlier in the year as well as strength across all of the company's reportable segments.

Revenue also benefited from price increases across the board. Total revenue also surpassed the Zacks Consensus Estimate of $1,352 million.

Total volumes grew 4% year over year mainly due to product innovation across the portfolio and strong retailer merchandising on several brands.

Revenue by Segment

Sales in the Cleaning segment grew 10% primarily due to 7% volume growth, gains in the Away From Home and Home Care business, price increases in the Laundry business, offset by lower shipments in the Laundry business.

Household segment sales increased 6% primarily due to 2% growth in volume and increased pricing. Higher volumes resulted from growth in shipments in all three business segments.

Clorox's Lifestyle segment recorded a 10% sales jump in the quarter compared with the base period a year ago, on the back of a 4% volume growth and increased pricing. The volume growth was primarily driven by higher shipments in all of the segment's businesses.

In the International business segment, Clorox's sales rose 4%, benefiting from price increases and 1% volume growth, partially offset by unfavorable foreign currency fluctuation and increase in trade-promotion expenditure. Volumes in the quarter benefited from increased shipments of home care products in the company's largest international region, Latin America, offset by lower shipments in the non-strategic export business, and a double-digit volume decline in Venezuela.

Margins

Clorox's gross margin decreased 180 basis points (bps) to 42.3% from 44.1% in the year-ago quarter. Increased commodity, manufacturing and logistics costs, unfavorable product and country mix more than offset benefits from price increases and prudent cost savings, leading to gross margin contraction.

Balance Sheet and Cash Flow

At quarter-end, Clorox had cash and cash equivalents of $303 million and long-term debt of $1,570 million. For the nine months ended March 31, 2012, the company generated $333 million cash from operations, a $54 million decline from the year-ago period.

Guidance

Looking ahead, the company adjusted its annual sales growth guidance for fiscal 2012 to 4%, against the company's previous guidance range of 2% - 4%. The revised guidance reflected betterment in the U.S. categories as well as robust results on the back of innovation, price increase and merchandising initiatives. F

urther, though the company expects strong sales growth in the fourth quarter, it is not as strong as the third quarter. This compares to the company's record sales growth of 4% in the fourth quarter of 2011.

Clorox continues to anticipate annual earnings of $4.00 to $4.10 per share in fiscal 2012. However, gross margin guidance for 2012 was revised to reflect a decline of 125 - 150 basis points compared to the previous guidance of 50 - 75 basis points contraction, due to the continued adverse impact of product and country mix. For fiscal 2012, Clorox expects to generate free cash flow of about 9% of sales.

Additionally, the company also rolled out its fiscal 2013 guidance, projecting sales growth in the range of 2% - 4%. Operating income margin for fiscal 2013 is expected to be flat, on the back of a moderate expansion in gross margin offset by increased administrative expenses. The company expects cost containment efforts and price hikes to offset increasing commodities and other manufacturing costs.

Further, the company guides expenditure toward systems and facilities development and other restructuring initiatives to be in the range of $50 - $55 million in fiscal 2012. The company anticipates fiscal 2013 earnings per share to be in the range of $4.20 - $4.35.

The Zacks Consensus Estimate for fiscal 2012 and 2013 stands at $4.07 per share and 4.30 per share, respectively, which lie within the company's guidance range for both periods.

Our Take

Clorox is making intensive capital investments in information technology systems and capabilities, particularly in the international market and R&D facilities to boost productivity while providing platforms for growth, product innovation and cost savings. The company believes that these initiatives will begin delivering benefits later in fiscal 2014 and beyond.

Clorox faces intense competition from other well-established consumer product companies, both in the U.S. and international markets. Most of the company's products compete with other widely advertised brands within each product category and private label brands and generic non-branded products of grocery chains and wholesale cooperatives in certain categories, which typically are sold at lower prices. The main competitors of Clorox are Colgate-Palmolive Company ( CL ) and Procter and Gamble Company ( PG ).

Currently, Clorox has a Zacks #4 Rank, implying a short-term Sell rating. However, we have a long-term Neutral recommendation on the stock.


 
COLGATE PALMOLI (CL): Free Stock Analysis Report
 
CLOROX CO (CLX): Free Stock Analysis Report
 
PROCTER & GAMBL (PG): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CL , CLX , IT , PG

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