The Clorox CompanyCLX posted mixed third-quarter fiscal 2015 results, wherein the top line fared better than expected but the bottom line failed estimates.
The company's earnings of $1.08 per share from continuing operations fell 5.3% from the year-ago quarter, missing the Zacks Consensus Estimate of $1.10.
The disappointing earnings was accountable to higher selling & administrative expenses, unfavorable exchange rates, increased manufacturing and logistics expenses and incremental investments made to build demand. However, the impact was partly offset by enhanced sales, higher prices and cost-saving initiatives. Commodity costs remained flat during the quarter.
Net sales climbed nearly 2.6% year over year to $1,404 million from $1,366 million in the year-ago quarter, mainly driven by increased prices, higher volumes and favorable mix, partially offset by unfavorable currency effects. On a currency neutral basis, revenues increased 5% in the quarter. Moreover, Clorox's sales surpassed the Zacks Consensus Estimate of $1,376 million.
During the quarter, volumes inched up 1% aided by strength in its Cleaning, Lifestyle and International segments.
Driven by higher sales, which were, however, partly offset by greater manufacturing and incentive compensation costs, Clorox's gross margin expanded 110 basis points (bps) to 43.2%.
Revenue by Segment
Sales in the Cleaning segment climbed 1% to $442 million, primarily due to a 1% increase in volume. Results mainly benefitted from strength witnessed in Home Care.
Household sales increased 5% to $451 million mainly on the back of a double-digit increase in Charcoal, partly offset by weakness at Cat Litter and Bags and Wraps.
Sales at the Lifestyle segment were up 3% year over year to $243 million driven by 2% volume growth. Volumes in the quarter gained from strong growth in Natural Personal Care and Dressings and Sauces, offset by lower shipments in Water Filtration.
In the International business segment, Clorox's sales remained flat at $265 million, reflecting negative currency impact. On a currency-neutral basis, sales increased 10% year over year. However, volume was up 1% due to gains in Mexico and Canada, partly offset by lower shipments in Asia and Argentina.
Balance Sheet and Cash Flow
Clorox ended the quarter with cash and cash equivalents of $378 million and long-term debt of $1,796 million. During the quarter, the company generated $481 million of net cash from operations as against $444 million in the same period last year.
The increase can mainly be attributed to lower incentive compensation payments and tax payments in the third quarter, partially offset by a $25-million payment to settle interest-rate hedges associated with the company's issuance of long-term debt.
Also, Clorox repurchased 1.5 million shares worth $158 million during the quarter.
Management remains pleased with its third-quarter results and believes that despite a challenging currency environment, it is strategically well-placed to achieve growth via cost-saving programs and price increases.
Following the strong sales results and the factors driving it, the company raised its sales guidance for fiscal 2015, expecting it to increase in a range of 1-2%, compared with a 1% increase projected earlier. This guidance includes a negative impact of over 2% from currency headwinds.
However, the company retained its gross margin forecast for fiscal 2015, which is anticipated to expand moderately. Also, EBIT margin is expected to remain flat, on account of moderate gross margin expansion, offset by greater incentive compensation costs and demand building investments. The effective tax rate is predicted to be 34%.
Further, the company raised its fiscal 2015 earnings forecast to $4.45-$4.55 per share compared with $4.40-$4.55 per share expected earlier.
Currently, Clorox carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Boston Beer Co. Inc. SAM and Amira Nature Foods Ltd. ANFI , each sporting a Zacks Rank #1 (Strong Buy), and SUPERVALU Inc. SVU with a Zacks Rank #2 (Buy).
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