The Clorox Company CLX began fiscal 2016 on a spectacular note as its first-quarter top and bottom-line results improved year over year and surpassed estimates.
Benefiting from enhanced sales and gross margin, the company’s quarterly earnings of $1.32 per share from continuing operations surged 20% year over year, cruising much ahead of the Zacks Consensus Estimate of $1.18.
Net sales rose 2.8% to $1,390 million, primarily driven by increased prices and robust volumes, partially offset by unfavorable currency effects and greater promotional expenditure. On a currency neutral basis, revenues increased 6% in the reported quarter. Moreover, sales outpaced the Zacks Consensus Estimate of $1,372 million.
During the quarter, volumes inched up 3%, aided by strength in the Cleaning, Household and Lifestyle segments.
Backed by efficient cost savings, lower commodity costs, robust volumes and improved pricing, partly offset by greater manufacturing and logistics expenses, Clorox’s gross margin expanded 220 basis points (bps) to 45.0% in the quarter.
Revenue by Segment
Sales in the Cleaning segment improved 6% to $497 million, with a 5% increase in volumes. Volumes mainly benefited from strength witnessed in Home Care and Professional Products.
Household sales increased 5% to $411 million, with a 1% jump in volumes, mainly aided by solid gains in Charcoal and Bags and Wraps.
Sales at the Lifestyle segment grew 7% to $231 million, driven by an 8% growth in volumes, which in turn benefited from strength witnessed in all businesses, including Natural Personal Care, Dressings and Sauces and Water Filtration.
In the International business segment, Clorox’s sales fell 8% to $251 million, reflecting the negative impact of currency. On a currency-neutral basis, sales increased 5% year over year. However, volumes remained flat as strength noted in Mexico and Canada was offset by lower shipments in various countries in Latin America.
Financials
Clorox ended the first quarter with cash and cash equivalents of $383 million, and long-term debt of $1,796 million. During the quarter, the company generated $135 million of net cash from continuing operations compared with $234 million a year ago.
Also, Clorox repurchased 1 million shares worth $112 million during the quarter.
Guidance
Management remains impressed with its cost savings, brand investments and demand-creation strategies, which enabled the company to achieve sales growth. These also helped Clorox achieve better productivity and improved margins.
While management expects fiscal 2016 to bear the brunt of adverse currency fluctuations, greater competition and sluggish global economies, it remains confident of its core business strategies.
Consequently, management reiterated its outlook for fiscal 2016, as the company remains on track with its 2020 Strategy. Clorox continues to expect fiscal 2016 sales growth in a range of flat to a 1% increase. On a currency neutral basis, sales growth is anticipated to range from 3%–4%.
EBIT margin is envisioned to expand in a band of 25–50 bps. The effective tax rate for the fiscal is estimated to be 34%–35%.
Finally, the company still envisions fiscal 2016 earnings to range from $4.68–$4.83 per share.
Zacks Rank
Clorox currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the consumer staples sector include Cal-Maine Foods, Inc. CALM, Diamond Foods, Inc. DMND and Constellation Brands Inc. STZ, each carrying a Zacks Rank #2 (Buy).
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