The Clorox Company (CLX) started fiscal 2015 on a strong note wherein both top and bottom lines marked a year-over-year improvement and also came ahead of the Zacks Consensus Estimate. The company’s earnings of $1.10 per share from continuing operations came ahead of the Zacks Consensus Estimate of $1.03 and were nearly 5% higher than the year-ago level.
The year-over-year rise in earnings was mainly driven by cost savings, price increases and higher volumes, partially offset by unfavorable exchange rates, increased manufacturing and logistics expenses as well as investments made toward incremental demand-building.
Net sales inched up 1% year over year to $1,352 million from $1,343 million in the year-ago quarter, mainly driven by increased prices and higher volumes. On a currency neutral basis, revenue increased 3% in the quarter. Moreover, Clorox’s sales surpassed the Zacks Consensus Estimate of $1,330 million.
Quarterly Revenue by Segment
Sales in the Cleaning segment declined 2% to $470 million, primarily due to a 1% decline in volume. During the quarter, the segment witnessed volume decline in its Laundry and Home Care businesses.
Household sales increased 5% to $392 million primarily due to a 4% rise in volume. The company witnessed improved volumes in Charcoal, Bags and Wraps. Charcoal volumes rose because of strong merchandising support and increased consumption during the U.S. Labor Day holiday.
Sales at the Lifestyle segment inched down 1% year over year to $216 million due to flat volume as increased sales of Natural Personal Care, primarily Burt's Bees lip and face care products were fully offset by weak shipments of Hidden Valley and Brita products.
In the International business segment, Clorox’s sales remained flat year over year at $274 million as the benefits of a 5% rise in volume were fully offset by adverse foreign currency translation, particularly in Argentina. Excluding currency effect, sales increased 10% year over year. Volume growth during the quarter was due to gains in Latin America, Europe and Asia.
Costs and Margins
Clorox’s gross margin contracted 70 basis points (bps) year over year to 42.8%. The year-over-year decline in gross margin was primarily due to rise in manufacturing and logistics 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 expanded 40 bps to 16.1% mainly on the back of strong cost saving initiatives which more than offset the negative effect of lower gross margin.
Balance Sheet and Cash Flow
Clorox ended the quarter with cash and cash equivalents of $355 million and long-term debt of $1,596 million. During the quarter, the company generated $234 million of net cash from operations against $184 million in fiscal 2013. The increase can be mainly attributed to lower incentive compensation payments.
Guidance
In the earnings release, Clorox reiterated its initial guidance for fiscal 2015, anticipating full-year sales to be nearly flat with fiscal 2014. The company’s projections reflect benefits from product innovation and price increases. This is likely to be offset by relatively flat U.S. categories coupled with increased investments in trade promotions to tackle competitive activity and improve product categories and market share. However, on a currency neutral basis sales are expected to grow 1%–3% in fiscal 2015.
However, the company now expects operating margin to remain flat as against previous forecast of 25 bps to 50 bps expansion in fiscal 2015. Effective tax rate is anticipated to be 34%–35%.
Further, the company reiterated its earnings forecast of $4.35 – $4.50 per share in the fiscal. Currently, the Zacks Consensus Estimate is pegged at $4.43 per share.
Other Stocks to Consider
Currently, Clorox carries a Zacks Rank #3 (Hold). Better-ranked stocks in the broader retail industry include Aeropostale, Inc. (ARO), Christopher & Banks Corp. (CBK) and Hanesbrands Inc. (HBI), all sporting a Zacks Rank #1 (Strong Buy).
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