The Clorox Company (CLX) came up with lower-than-expected earnings for second-quarter fiscal 2014. The company’s earnings of 88 cents per share from continuing operations missed the Zacks Consensus Estimate of 91 cents and fell over 5% from the year-ago quarter figure of 93 cents.
Quarterly earnings were negatively impacted from adverse foreign currency exchange rates and higher manufacturing and logistics costs as well as commodity costs, partially offset by increased pricing, higher volume and effective cost management.
Net sales marginally improved year over year to $1,330 million from $1,325 million in the year-ago quarter. Benefits from increased pricing and higher volumes were partially offset by adverse foreign exchange rates as well as unfavorable product mix. Total volume inched up 1% in the quarter. Moreover, total revenue surpassed the Zacks Consensus Estimate of $1,320 million.
Revenues by Segment
Sales in the Cleaning segment nudged up 2% to $432 million, primarily driven by increased pricing and a 3% rise in volume. During the quarter, the segment witnessed volume growth in its Professional Products and Home Care businesses, while Laundry volume remains almost flat.
Household sales inched down 1% to $352 million, primarily due to a 1% fall in volume. Volumes in the quarter mainly impacted due to weak performance of Charcoal business. This occurred due to seasonality of Charcoal business. However, volume at the company’s Cat Litter business witnessed improvement while Glad business volume remains flat during the quarter.
Sales at the Lifestyle segment remain flat year over year at $237 million, as the benefit of price increase was fully offset by a 1% fall in volume.
In the International business segment, Clorox’s sales improved 1% to $309 million, primarily driven by increased pricing, higher volume and favorable product mix, partially offset by adverse foreign currency translation. Excluding currency effect, sales increased 9% year over year. Segment volume grew 2% year over year due to volume gains in Argentina, Canada and the Middle East were partially offset by volume declines in Venezuela.
Costs and Margins
Clorox’s gross margin contracted 60 basis points (bps) year over year at 41.9%. The year-over-year decline in gross margin was primarily due to the higher manufacturing and logistics costs as well as commodity costs which were partially offset by increased pricing and strong cost saving initiatives.
Further, earnings from continuing operations before income taxes contracted 60 bps to 13.6% primarily due to lower gross margin and higher advertising expenses as a percentage of net sales.
Balance Sheet and Cash Flow
Clorox ended the first six month of fiscal 2014 with cash and cash equivalents of $341 million and long-term debt of $2,170 million. During the first half of fiscal 2014, the company generated $212 million of net cash from operations against $325 million in the same time frame of fiscal 2013, primarily due to higher tax payments and some nonqualified deferred compensation plans.
Guidance
Anticipating pressures from unfavorable foreign currency exchange rates and increased commodity costs, Clorox has lowered its sales and earnings forecasts for fiscal 2014. The company now expects sales to grow in the range of 1%–2%, instead of 2%–3% projected earlier. Further, earnings per share are now expected to be $4.40–$4.55, down from earlier forecast of $4.45–$4.60.
However, the company still expects operating margin expansion in the range of flat to 25 basis points (bps) in fiscal 2014. Effective tax rate is anticipated to be approximately 34%.
Headquartered in Oakland, California, Clorox is primarily engaged in the production, marketing and sale of consumer products in the U.S. and international markets. The company sells its products primarily through mass merchandisers, grocery stores and other retail outlets. Clorox manufactures products in more than 24 countries and markets them in more than 100 countries.
Other Stocks to Consider
Currently, Clorox carries a Zacks Rank #4 (Sell). However, some better-ranked stocks in the consumer staples sector include ConAgra Foods, Inc. (CAG), Lorillard, Inc. (LO) and Mondelez International, Inc. (MDLZ). All of these carry Zacks Rank #2 (Buy).
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