Cleaning Product Demand to Aid Clorox's (CLX) Q3 Earnings
Strength in The Clorox Company’s CLX Cleaning business, which contributes nearly 35% to its total revenues, is expected to have bolstered its overall performance in third-quarter fiscal 2020, owing to the burgeoning demand for floor cleaners and disinfectants amid the coronavirus pandemic. The company will report fiscal third-quarter earnings on May 1.
Coronavirus-Led Surge in Cleaning Products’ Demand
The novel coronavirus outbreak has not only confined everyone indoors but has also increased consciousness about maintaining clean homes. This has resulted in increased demand for hand sanitizers, tissue papers, infant supplies, disinfecting wipes, and other floor and house-cleaning products.
Clorox’s Cleaning segment primarily sells laundry, home-care, professional and auto-care products in the United States. Notably, the company’s facilities have been operational amid the virus outbreak to supply essential cleaning products like bleaches, and floor and other disinfectants.
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In fact, it has seen its disinfecting wipes and other household cleaning and personal hygiene products, including the namesake bleach, flying off supermarket shelves as consumers stocked up everyday essentials in the first half of March. Consumers’ initial panic-buying trend in March is expected to have been beneficial for Clorox’s third-quarter fiscal 2020 top-line performance.
For the fiscal third quarter, the Zacks Consensus Estimate for revenues is pegged at $1.71 billion, suggesting 10.5% growth from the prior-year reported figure. The consensus estimate for sales for the Cleaning segment stands at $660 million, suggesting year-over-year growth of 29.9% mainly due to gains from the coronavirus outbreak-induced sales.
The Clorox Company Price and EPS Surprise
The Clorox Company price-eps-surprise | The Clorox Company Quote
Overall Expectations
The company’s progress on the IGNITE strategy, focused on pacing up innovation in each area of business, has been commendable. It has been executing on a strong innovation plan, with investments in bigger and enduring multi-year innovation platforms, which differentiate its products and brands. Results for the fiscal third quarter are likely to reflect gains from its robust innovation pipeline for the second half of fiscal 2020.
Additionally, it has been concentrating on pricing and cost-containment efforts. The company’s cost-based pricing strategy has enabled it to address the inflationary environment that has persisted for over three years, resulting in gross margin expansion over the past few quarters. Moreover, Clorox has been witnessing strong progress in the core International business as it continues to build on the success of the segment's Go Lean strategy. These efforts have been accelerating growth of the segment.
However, this Zacks Rank #1 (Strong Buy) company expects the persistence of operational headwinds in the Grilling, and Bags and Wraps businesses, which have been hurting sales of the Household segment for a while now. On the last earnings call, it predicted that competitive price reductions and higher promotional activities are likely to continue hurting sales for the Bags and Wraps business in the fiscal third quarter. Nonetheless, the company expects to witness continued sequential improvement in these businesses in the second half.
Additionally, headwinds related to trade promotional spending, unfavorable mix, manufacturing and logistics expenses, and advertising and sales promotion spending cannot be ignored. These are expected to get reflected on quarterly margins and in turn the bottom line.
We note that the Zacks Consensus Estimate for sales of the Household segment is pegged at $582 million, which indicates year-over-year growth of 19%. The consensus estimate for the Lifestyle segment’s sales of $340 million suggests an improvement of 10% year over year. Meanwhile, the consensus mark for sales of the International segment is $238 million, indicating a decline of 2.9% year over year.
Don’t Miss Other Favorable Consumer Staples Peers
National Beverage Corp. FIZZ has posted a positive earnings surprise of 2.9%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Church & Dwight Co., Inc. CHD has an impressive long term earnings growth rate of 8.2%. It currently carries a Zacks Rank #2 (Buy).
Reeds, Inc. REED, with a long-term earnings growth rate of 20%, currently carries a Zacks Rank #2.
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