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Clorox (CLX) Stock Up 5.6% Since Q2 Earnings: Here's Why

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Shares of consumer goods behemoth The Clorox CompanyCLX have jumped 5.6% since the company released robust second-quarter fiscal 2017 results. In fact, the company has been depicting a bullish trend for quite some time now, with its stock price up 13.1% in the last three months, outperforming the Zacks categorized Soap & Cleaning Preparations industry's growth of 6.3%.

Delving deeper into Clorox's most recent upside movement - let's take a sneak peek into the company's second-quarter fiscal 2017 results, wherein both top line and bottom line surpassed our respective estimate and grew year over year. While earnings benefited from strong sales and improved cost-savings, top line triumphed upon robust volume growth across all segments.

Also, gross margin expanded as gains from cost savings and better global pricing countered greater manufacturing and logistics costs. Further, the company revealed that it's moving ahead of track with regard to the integration of Renew Life, which was acquired in May 2016 and has been driving sales.

Given the seamless integration, along with solid year-to-date sales, management raised the lower end of its previously issued sales outlook. The company now expects fiscal 2017 sales growth in a range of 3-4%, compared with the prior forecast of 2-4%. Further, management expects its EBIT margin to expand in a band of 25-50 bps in fiscal 2017, mainly backed by lower selling and administrative costs (as a percentage of sales). Together, these factors instill confidence about the company's future performance.

Apart from this, Clorox has been gaining from its brand strength and increased focus on its 2020 Strategy. The strategy is aimed at achieving certain long-term aspirations, including growing net sales by 3−5%, increasing EBIT margin by 25−50 bps and generating free cash flow of 10−12% of sales, all on a yearly basis. Clorox is on track with this strategy, which is meant to be achieved through key accelerators like investment in brands; development of eCommerce; technological advancements; enhancement of growth culture and focus on the 3Ds - desire, decision and delight.

However, Clorox has long been battling foreign currency headwinds, which hurt its second quarter sales by little less than 2% points. Also, currency hurdles, along with a challenging macro environment are expected to linger in fiscal 2017, thus posing threats to the company.

Further, the company tweaked its earnings guidance for the fiscal, because management now expects benefits from the recently adopted Accounting Standards Update (ASU) 2016-09, on earnings to be reduced by 5 cents. Consequently, the company slashed the higher-end of its earnings forecast for fiscal 2017 to $5.23-$5.38 per share from $5.23-$5.43 expected earlier. This has also caused a downtrend in estimates.

Clorox Company (The) Price and Consensus

Clorox Company (The) Price and Consensus | Clorox Company (The) Quote

Nonetheless, we believe that Clorox's growth drivers are far too many, and are most likely to counter these obstacles and help the company sustain its impressive momentum. Well, let's wait and see what lies in store for this Zacks Rank #3 (Hold) company.

Until then, investors can count on Unilever Plc UL , which carries a Zacks Rank #2 (Buy). Other stocks worth considering in the consumer staples sector include Energizer Holdings, Inc. ENR and Blue Buffalo Pet Products Inc. BUFF , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Unilever, with long-term EPS growth rate of 6.3%, has witnessed positive estimate revisions in the last seven days and has a VGM Style Score of "A".

Energizer Holdings has to its credit a spectacular earnings history as the company delivered an average positive earnings surprise of 20.5% in the past four quarters. Moreover, its long-term EPS growth rate of 9.5% and positive estimate revisions in the past 30 days help it stand strong against the industry.

Blue Buffalo, with long-term EPS growth rate of 14%, flaunts a solid earnings history having delivered an average positive surprise of 10.4 in the trailing four quarters.

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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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