The Clorox Company (CLX) came up with lower-than-expected financial results for fourth-quarter and fiscal 2014 on account of unfavorable exchange rates in many markets, sluggish product categories and increased competitive activities faced throughout the year.
Earnings of $1.30 per share from continuing operations in the fourth quarter missed the Zacks Consensus Estimate of $1.34. However, it rose 5.8% from the comparable year-ago quarter. The miss resulted from increased manufacturing and logistics expenses as well as commodity costs in the quarter along with investments made toward incremental demand-building initiatives, taken up in the fourth quarter. This was slightly offset by cost savings and price increases coupled with lower selling and administrative expenses.
Net sales decreased 2.3% year over year to $1,511 million from $1,547 million in the year-ago quarter and missed the Zacks Consensus Estimate of $1,519 million. Benefits from increased pricing were more than offset by adverse foreign exchange rates, flat volumes and increased trade promotion expenses. On a currency neutral basis, revenue increased 0.5% in the quarter.
Fiscal 2014 Synopsis
For fiscal 2014, the company’s adjusted earnings came in at $4.26 per share, falling below the prior-year figure and the Zacks Consensus Estimate of $4.31. The company’s fiscal year earnings were negatively impacted by currency devaluation in Venezuela, which dragged its bottom line by approximately 14 cents per share. Excluding this impact, Clorox’s earnings came in at $4.40 per share.
Revenue for the year fell 0.6% to $5,591 million and missed the Zacks Consensus Estimate of $5,601 million.
Quarterly Revenue by Segment
Sales in the Cleaning segment declined 1% to $428 million, primarily due to flat volumes. During the quarter, the segment witnessed volume decline in its Laundry business while Home Care volume remained flat. However, Professional Products volume improved year over year.
Household sales dipped 2% to $557 million primarily due to a 2% decline in volume. Volumes in the quarter were impacted by lower shipments in the Glad and Cat Litter businesses offset by improved volumes in Charcoal. Decline in Glad trash products volume was due to the price rise in March, while Cat Litter suffered from increased competition. Charcoal volumes rose because of strong merchandising support, pleasant weather and market share gains.
Sales at the Lifestyle segment rose 2% year over year to $244 million, driven by a 2% volume increase that came from increased sales of Natural Personal Care, primarily Burt's Bees lip and face care products as well as increased merchandising support from Brita pour-through water filters.
In the International business segment, Clorox’s sales declined 8% to $282 million mainly due to adverse foreign currency translation, particularly in Argentina and Venezuela, partially offset by a 1% rise in volume. Excluding currency effect, sales increased 6% year over year. Volume growth during the quarter was due to gains in Europe, Asia and Canada, offset by declines in Venezuela, Puerto Rico and Colombia.
Costs and Margins
Clorox’s gross margin contracted 170 basis points (bps) year over year to 42.3%. The year-over-year decline in gross margin was primarily due to the rise in manufacturing and logistics costs as well as commodity costs, partially offset by increased product pricing and strong cost saving initiatives.
However, earnings from continuing operations before income taxes as a percentage of sales contracted 30 bps to 17.1%.
Balance Sheet and Cash Flow
Clorox ended fiscal 2014 with cash and cash equivalents of $329 million and long-term debt of $1,595 million. During fiscal 2014, the company generated $771 million of net cash from operations against $777 million in fiscal 2013. The decrease was primarily due to higher tax payments and some nonqualified deferred compensation plans offset by favorable changes in working capital.
Additionally, the company remains focused on using excess cash to return value to shareholders in the form of share repurchases and dividend payments. In fiscal 2014, the company bought back over 3 million shares for about $260 million. The company also increased its dividend by 4% in the fourth quarter.
Guidance
In the earnings release, Clorox reiterated its initial guidance for fiscal 2015, anticipating full-year sales to be nearly flat compared with fiscal 2014. The company’s projections reflect benefits from product innovation and price increases. This will likely be offset by relatively flat U.S. categories coupled with increased investments in trade promotions to tackle competitive activity and improve on product categories and market shares. However, on a currency neutral basis sales are expected to grow 1%–3% in fiscal 2015.
The company expects operating margin expansion to range from 25 bps to 50 bps in fiscal 2015, benefiting from over 150 bps in cost savings, price increases in the international business and moderation in commodity cost inflation compared with fiscal 2014. The company expects these benefits to be slightly offset by incremental demand-building investments to support category and market share growth across its brands.
Selling and administrative expense as a percentage of sales for fiscal 2015 is expected to be nearly 14% on account of productivity gains offset by a return to targeted levels of incentive compensation accruals. Effective tax rate is anticipated to be 34%–35%.
Further, the company expects earnings to come in between $4.35 and $4.50 per share in the fiscal.
Other Stocks to Consider
Currently, Clorox carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Fresh Del Monte Produce Inc. (FDP), Boston Beer Co. Inc. (SAM) and Castle Brands Inc. (ROX), all carrying a Zacks Rank #1 (Strong Buy).
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