Clorox Company (The) (CLX)

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Clorox (CLX)

Q4 2011 Earnings Call

August 03, 2011 1:30 pm ET

Executives

Donald Knauss - Chairman and Chief Executive Officer

Lawrence Peiros - Chief Operating Officer

Daniel Heinrich - Chief Financial Officer and Executive Vice President

Steve Austenfeld - Vice President of Investor Relations

Analysts

Edward Kelly - Crédit Suisse AG

Lauren Lieberman - Barclays Capital

Alice Longley - Buckingham Research Group, Inc.

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

Per Ostlund - Jefferies & Company, Inc.

William Schmitz - Deutsche Bank AG

Leigh Ferst

Timothy Conder - Wells Fargo Securities, LLC

Wendy Nicholson - Citigroup Inc

Unknown Analyst -

Patrick Trucchio - BMO Capital Markets

Linda Weiser - Caris & Company

Christopher Ferrara - BofA Merrill Lynch

Presentation

Operator

Good day, ladies and gentlemen, and welcome to The Clorox Company Fourth Quarter and Fiscal Year 2011 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you may begin your conference.

Steve Austenfeld

Great. Thanks, Kevin. Welcome, everyone, and thank you for joining Clorox's fourth quarter conference call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; Larry Peiros, Executive Vice President and Chief Operating Officer; and Dan Heinrich, our Chief Financial Officer. We're broadcasting this call over the Internet, and a replay of the call will be available for 7 days at our website, thecloroxcompany.com.

Let me remind you that on today's call, we will refer to certain non-GAAP financial measures including, but not limited to, free cash flow, EBIT margin and debt-to-EBITDA. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today’s press release, this webcast's prepared remarks or supplemental information available in the Financial Results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today’s earnings release.

Please recognize that today’s discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements.

Today, Don will start by sharing his perspective on our fourth quarter and fiscal year '11 results and the current business environment. Larry will then discuss our top line results for the quarter, followed by Dan, who will review our financial performance and outlook for fiscal year '12. Don will wrap up with his perspective on fiscal '12 before we then take your questions. Lastly, as a reminder, unless noted, our financial results exclude the impact of the noncash second quarter goodwill impairment charge.

With that, let me turn it over to Don.

Donald Knauss

Thanks, Steve. Hello, everyone. Thanks for joining the call. As noted in the press release, we delivered strong fourth quarter results, and I look forward to discussing those with you in detail. But before I turn to our discussion of the quarter, however, I would like to take a minute to address the Icahn Enterprises proposal.

As you know, on July 20, we received an unsolicited, conditional proposal from Icahn Enterprises to acquire Clorox for $80 per share. Now our Board of Directors with consultation with our independent legal and financial advisors carefully considered to Mr. Icahn's proposal and concluded, it substantially undervalues the company and is not credible. We don't intend to comment further regarding the unsolicited proposal at this time, as the purpose of this call is really to discuss our earnings results and our financial outlook for FY '12. So with that, let's me turn to our results.

We delivered strong fourth quarter results, with 4% sales growth and 20% increase in diluted earnings per share. Now as we noted throughout fiscal 2011, we anticipated achieving higher growth in the second half of the year versus the first half, and we delivered it, returning to solid sales, profit and EPS growth in that period. In fact, we delivered the second half sales growth of 3%, second half net earnings growth of 6% and second half diluted EPS growth of 11%.

Now as I look back on fiscal 2011, the external environment was certainly characterized by a slow economic recovery, declining U.S. categories and rising commodity costs. I think we're all familiar with those trends. With that in mind, I feel very good about our organization's demonstrated ability to effectively manage our business and successfully execute our Centennial Strategy and deliver results. We talked about a lot about our 3D capabilities, and those capabilities are around desire, design and delight, have never been stronger. And I think they're reflected in our all-time high U.S. all-retail outlet market share results.

We achieved a 27.9% share, and that's up higher than any of our branded competitors. And we feel very good about that result. In the area of delight, in fiscal year 2011, we again exceeded our innovation target of 2% of incremental sales from new products and packages coming in at 2.8% of incremental sales. And now, with 48% of our sales coming from consumer-preferred products versus the competition, we're on track to meet or exceed our 2013 50% customer preference goal of full-year early.

Now our market share and innovation performance in FY '11, I think, demonstrates the strong capabilities that Clorox brings to our portfolio of leading brands. And although our products are found in many different aisles of the store, we ship our products to the same customer set, on the same trucks and through the same warehouses. We leveraged our deep capabilities and consumer and shopper insights to identify consumer needs and then solve for them with outstanding innovation across the portfolio. And I think, as you're all familiar to, we also use best-in-class cost savings capabilities and methodologies across all parts of our portfolio.

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