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Clorox (CLX) Keeps Earnings Streak Alive in Q2, Raises View

The Clorox CompanyCLX continued its positive surprise trend with second-quarter fiscal 2016 earnings from continuing operations of $1.14 per share, which were substantially ahead of the Zacks Consensus Estimate of $1.05. Also, the company's bottom line surged 18% year over year driven by the highest second-quarter gross margin in over five years.

The Clorox Company (CLX) Street Actual & Estimate EPS - Last 5 Quarters | FindTheCompany

Although net sales of $1,345 million remained flat with the prior-year quarter, it came in slightly below the Zacks Consensus Estimate of $1,349 million. During the quarter, gains from volume growth and higher prices were negated by a 3% impact from unfavorable currency effects and greater promotional expenditure. On a currency-neutral basis, revenues increased 3% in the reported quarter.

Volumes inched up 1%, aided by strength in the Home Care and Natural Personal Care categories, offset by lower Laundry and Water Filtration revenues.

Backed by efficient cost savings, lower commodity costs and improved pricing, Clorox's gross margin expanded 210 basis points (bps) to 44.6% in the quarter. However, the upside was partly limited by greater manufacturing and logistics expenses and currency headwinds.

Revenue by Segment

Sales in the Cleaning segment improved 2% to $457 million, with a 2% increase in volumes. Volumes mainly benefited from the strength in Home Care brands, particularly Clorox disinfecting wipes, offset by lower Laundry shipments.

Household sales inched up 1% to $375 million, while volumes remained flat. Volume was mainly aided by solid gains in Charcoal and Bags and Wraps, offset by lower volume in Cat Litter.

Sales at the Lifestyle segment grew 2% to $251 million, driven by a 2% increase in volumes, which in turn benefited from double-digit growth witnessed in Natural Personal Care.

In the International business segment, Clorox's sales fell 7% to $262 million, reflecting the negative impact of currency. On a currency-neutral basis, sales jumped 6% year over year, mainly on higher prices and a good mix, while negating the impact of slowing economic growth in the international markets.

Financials

Clorox ended the fiscal second quarter with cash and cash equivalents of $390 million, and long-term debt of $1,796 million. In the first half of fiscal 2016, the company generated $178 million of net cash from continuing operations compared with $267 million in the year-ago period.

Guidance

While management expects fiscal 2016 to bear the brunt of adverse currency fluctuations, greater competition and sluggish global economies, it remains confident of its core business strategies.

Consequently, management reiterated its sales outlook for fiscal 2016, while it raised its EBIT margin and earnings per share forecasts. Clorox continues to expect fiscal 2016 sales growth in a range of flat to a 1% increase. On a currency-neutral basis, sales growth is anticipated to range from 3% to 4%. Also, the company reiterated its effective tax rate guidance for the fiscal in the range of 34%-35%.

However, the company raised its EBIT margin guidance and projected expansion in a band of 50-75 bps compared with 25-50 bps expected earlier. The improvement in EBIT margin forecast is driven by lower commodity costs, offset by higher inflation in international markets, which will weigh on the manufacturing and logistics costs as well as selling and administrative expenses. Also, EBIT margin includes higher advertising and sales promotion investments in the U.S. related to product innovation in the back half of the fiscal year.

Finally, the company raised its fiscal 2016 earnings estimate to $4.75-$4.90 per share as against $4.68-$4.83 per share projected before.

Zacks Rank

Clorox currently holds a Zacks Rank #2 (Buy). Other well-placed stocks in the consumer staples sector include ConAgra Foods Inc. CAG , Pinnacle Foods Inc. PF and The J. M. Smucker Company SJM , each holding the same Zacks Rank #2 as Clorox.

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CONAGRA FOODS (CAG): Free Stock Analysis Report

SMUCKER JM (SJM): Free Stock Analysis Report

CLOROX CO (CLX): Free Stock Analysis Report

PINNACLE FOODS (PF): 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 Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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