A month has gone by since the last earnings report for Clorox (CLX). Shares have added about 2.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Clorox due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Clorox Earnings Surpass Estimates in Q2, Sales Miss
Clorox reported robust second-quarter fiscal 2019 results, wherein earnings surpassed estimates for the ninth straight quarter. Though revenues improved year over year, it marginally missed estimates. Further, the company reiterated its outlook for fiscal 2019.
Quarterly earnings from continuing operations of $1.40 per share increased 2.2% year over year and surpassed the Zacks Consensus Estimate of $1.32. The bottom-line improvement was mainly backed by a lower tax rate along with higher sales and gains from cost savings.
Net sales of $1,473 million advanced 4% year over year but marginally missed the Zacks Consensus Estimate of $1,479 million. The year-over-year improvement in the top line was driven by solid execution of pricing and cost-saving plans. Additionally, the company’s sales benefited from a contribution of 4 percentage points from the Nutranext acquisition. However, these gains were partly compensated by negative impact of 3 percentage points from foreign currency.
Gaining from recent price increases and cost savings, Clorox witnessed gross margin expansion of 70 bps to 43.7% in the fiscal second quarter. However, the aforementioned gains were partly negated by elevated commodity as well as manufacturing and logistics expenses.
Sales in the Cleaning segment improved 6% to $500 million, courtesy of strength across all businesses. Sales growth was led by the Home Care category, backed by strong innovation across the portfolio. This was followed by robust sales for the Professional Products business, with strong category growth.
The Household segment’s sales declined 4% to $393 million mainly due to fall in Bags and Wraps. These categories were largely impacted by increased competition for trash bags and distribution losses in food storage products, and lower consumption of Charcoal. However, gains in Cat Litter, driven by great results for the Fresh Step Clean Paws innovation, partly mitigated the segment’s top-line decline.
Sales at the Lifestyle segment increased 25% to $335 million, mainly driven by the Nutranext buyout. Moreover, Dressings and Sauces, and Natural Personal Care divisions aided the segment’s growth.
At the International segment, sales dropped 8% to $245 million as gains from higher prices were more than offset by unfavorable foreign currency impacts.
Clorox ended the fiscal second quarter with cash and cash equivalents of $162 million, and long-term debt of $2,285 million. In the first half of fiscal 2019, the company generated $449 million of net cash from continuing operations.
FY19 Guidance Intact
Clorox reiterated its guidance for fiscal 2019. The company continues to project sales growth of 2-4% from the fiscal 2018 level. The improvement will be backed by innovations that are likely to deliver about 3 percentage points of additional sales. The top line is also likely to reflect the combined positive effect of the Nutranext acquisition and the Aplicare divestiture to the tune of 3 percentage points. However, top-line growth guidance includes negative impact of about 3 percentage points from currency rates.
Gross margin is estimated to remain flat in fiscal 2019 as gains from higher prices and cost-savings efforts are expected to be offset by increased costs and adverse foreign currency exchange rates. Advertising and sales promotion spending is anticipated to be roughly 10% of sales. Selling and administrative expenses are projected to be nearly 14% of sales. The company continues to envision effective tax rate of 23-24%.
Consequently, for fiscal 2019, management anticipates earnings per share of $6.20-$6.40 from continuing operations. Notably, earnings projection includes nearly 8-12 cents benefit from the Nutranext acquisition. It also includes negative impact of nearly 5-7 cents from tariffs, which are hurting certain business segments.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Clorox has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Clorox has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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