Earnings Scorecard: Clorox - Analyst Blog


The Clorox Company ( CLX ), one of the world's leading manufacturers of consumer products, posted its third-quarter 2012 results on Wednesday, 2 nd May. Therefore, the analysts had just over a week to ponder over the results. In the subsequent paragraphs, we will cover the recent earnings announcement, analysts' estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.

Earnings Review

Clorox 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, above the Zacks Consensus Estimate of $1.03.

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.

Management Guidance for fiscals 2012 & 2013

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.

However, gross margin guidance for 2012 was revised to reflect a decline of 125 - 150 basis points compared with its previous guidance of 50 - 75 basis points, due to the continued adverse impact of product and country mix. Therefore, Clorox continues to anticipate annual earnings of $4.00 to $4.10 per share in fiscal 2012. 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. Moreover, the company anticipates fiscal 2013 earnings per share to be in the range of $4.20 - $4.35.

(Read our full coverage on this earnings report: Clorox Beats, Guides 2012 & 2013 )

Agreement of Analysts

The analysts portrayed mixed sentiments for fourth-quarter 2012 while for first-quarter 2013, a negative sentiment is witnessed among them.  Over the last 7 days, 6 out of 14 analysts revisited their estimates, of which 4 analysts lowered their estimates for fourth-quarter 2012, while 2 analysts adjusted it in the upward direction. For the first quarter of fiscal 2013, 5 out of 8 analysts covering the stock lowered their estimates over the last 7 days, while no movement was witnessed in the opposite direction.

Over the last 7 days, 2 analysts reduced their estimates for fiscal 2012, while for fiscal 2013, 1 analyst lowered the same.

Magnitude of Estimate Revisions

With no major movement in estimate revision seen over the past one week, the Zacks Consensus Estimate for fiscal 2012 remained stable at $4.06 per share, while for fiscal 2013 it moved down by a penny to $4.28 per share.

For the fourth quarter of fiscal 2012, the Zacks Consensus Estimate remained stagnant at $1.28 per share, over the last 7 days. However, for first-quarter 2013, analysts moved down their estimates by 5 cents to $1.00 per share.

We believe Clorox's conservative gross margin outlook for fiscal 2012, has prompted analysts to revise their estimates accordingly. Similarly, after considering Clorox's year-over-year flat operating margin projection and earnings forecast for fiscal 2013, analysts have lowered their estimates for first-quarter and fiscal 2013 to better align with the company's guidance.

Our Recommendation

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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