Clorox 3Q Earnings Miss Estimate
California-based The Clorox Company (CLX) came up with lower-than-expected earnings and sales comparisons for the third-quarter of fiscal 2013. The company’s earnings of $1.00 per share missed the Zacks Consensus Estimate of $1.06 and fell nearly 3.8% from the year-ago quarter’s adjusted earnings of $1.04.
Quarterly earnings of this Zacks Rank #3 (Hold) company were primarily affected by unfavorable weather conditions and adverse foreign currency exchange rates along with increased advertising and promotional costs, which were partially offset by lower selling and administrative expenses and reduced spending for information technology (IT) systems.
Net sales inched up 1.0% year over year to $1,413 million from $1,401 million in the year-ago quarter. Total volume remained flat year over year. However, total revenue came below the Zacks Consensus Estimate of $1,436 million. The company’s quarterly net sales were negatively impacted by currency devaluation in Argentina and Venezuela and unfavorable weather conditions resulting in double-digit decline in sales and volume in the U.S. charcoal business.
Revenue by Segment
Sales in the Cleaning segment inched up 2% to $454 million, primarily due to 1% volume growth and higher prices. During the quarter, the segment witnessed volume growth in its Professional Products business while volume at Laundry business declined.
Household sales inched down 1% to $413 million primarily due to 4% decline in volume. Volumes in the quarter were adversely impacted by double-digit decline in charcoal resulting from cold weather in the U.S. in March and volume decline in Cat Litter products.
Sales at the Lifestyle segment hiked 2% to $245 million, primarily due to an increase of 1% in volume. Volume growth in the Burt's Bees and Food businesses was responsible for the improvement.
In the International business segment, Clorox’s sales improved 2% to $301 million, benefiting from price and volume increases.
Costs and Margins
Clorox’s gross margin contracted 20 basis points (bps) to 42.1% from 42.3% in the year-ago quarter. The year-over-year decline in gross margin was primarily due to margin contraction in International business and reduced charcoal sales.
The company’s operating income stood at $202 million compared with $198 million in the third quarter of fiscal 2012. Operating margin improved 20 bps to 14.3% driven primarily by the company’s effective cost management.
Balance Sheet and Cash Flow
Clorox ended the quarter with cash and cash equivalents of $423 million and long-term debt of $2,169 million. During the first nine months of fiscal 2013, the company generated $486 million net cash from operations, exhibiting an increase of $153 million from the year-ago period.
Guidance
Battered by lower-than-expected quarterly performance, Clorox lowered its sales growth forecast to 3%–4% for fiscal 2013 from 3%–5% forecasted earlier, on account of reduced charcoal sales due to adverse weather conditions.
The company, which competes with Church & Dwight Company Inc. (CHD), Colgate-Palmolive Company (CL) and Proctor & Gamble Company (PG) continues to expect operating margin to expand by 25 to 50 basis points in fiscal 2013, on the back of strong cost savings, the benefit of price increases and flat commodity costs forecasts. Further, the company still anticipates annual earnings of $4.25–$4.35 per share in fiscal 2013.
Looking ahead, Clorox initiated fiscal 2014 outlook with sales growth forecast of 2%–4% while earnings are expected to range from $4.55 – $4.70 per share. Operating margin for the fiscal is likely to expand 25 to 50 bps.
Headquartered in Oakland, CA, 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. The company manufactures products in more than 24 countries and markets them in more than 100 countries.
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