Clorox (CLX) Down 1.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Clorox (CLX). Shares have lost about 1.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Clorox due for a breakout? 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 catalysts.
Clorox Q1 Earnings and Sales Top Estimates, Decline Y/Y
Clorox reported mixed results for first-quarter fiscal 2022, wherein the top and bottom lines beat the Zacks Consensus Estimate but declined year over year. Results were impacted by soft sales performance across two of the four segments. Lower shipment volume along with an unfavorable price mix mainly hurt sales. This along with higher manufacturing and logistics costs, and increased commodity costs dented the bottom line and margins.
Nonetheless, management is encouraged by the company’s portfolio, which helps it efficiently cater to the consumer demand and position it well for long-term growth. Its IGNITE strategy also appears encouraging.
Q1 Highlights
Adjusted earnings of $1.21 per share decreased 54% year over year but beat the Zacks Consensus Estimate of $1.01. The earnings decline can be attributed to a decrease in sales and a lower gross margin. Adjusted earnings excluded 7 cents related to investments in the company's long-term digital capabilities and productivity enhancements.
The company posted net sales of $1,806 million, beating the Zacks Consensus Estimate of $1,703 million. The top line, however, declined 6% from the year-ago quarter, whereas organic sales dipped 5%. Sales were mainly impacted by the decline of volume and unfavorable price mix. The adverse currency also hurt the top line by 1%. The company witnessed a 2% decline in volume and a 3% unfavorable price mix. However, it noted that sales increased 21% on a two-year basis.
The gross margin contracted 1,090 basis points (bps) to 37% in the fiscal first quarter. Elevated manufacturing and logistics costs and higher commodity costs due to significant cost inflation hurt the gross margin.
Segmental Discussion
Sales of the Health and Wellness segment dropped 8% to $745 million on sales declines in two of the three business units. Lower shipment volume of professional products; vitamins, minerals and supplements; and unfavorable price mix led to the downside.
The Household segment’s sales declined 12% to $442 million, driven by sales declines in two of the three business units — Bags & Wraps, and Grilling. Unfavorable price mix; lower shipments in Grilling and Bags & Wraps; and unfavorable price mix were the primary reasons.
Sales at the Lifestyle segment improved 4% year over year to $331 million. Growth in two of the three businesses due to higher volume from increased shipments Water Filtration and Natural Personal Care aided the segment’s sales. This was partly negated by the unfavorable price mix.
In the International segment, sales rose 1% to $288 million from the year-ago quarter on a favorable price mix, offset by a slight decline in shipment volume and unfavorable currency. Organic sales for the segment improved 3%.
Financials
Clorox ended first-quarter fiscal 2022 with cash and cash equivalents of $210 million, and long-term debt of $1,885 million. In the fiscal first quarter, the company generated $41 million of net cash from operations.
Fiscal 2022 Guidance
Management notes that fiscal 2022 started on a strong note. It witnessed a better-than-anticipated demand across its portfolio despite the tough environment. The company reiterated its fiscal 2022 outlook. It envisions a 2-6% sales decline, both on a reported and organic basis, for fiscal 2022.
The gross margin is expected to decline 300-400 bps in fiscal 2022 on escalated commodity costs, and manufacturing and logistics expenses, particularly transportation. The company expects to return to gross margin growth in the fourth quarter of fiscal 2022.
Selling and administrative expenses, as a percentage of sales, are projected to be 15% of sales. The company anticipates 1% of this to be for planned investments in digital capabilities and productivity enhancements. It expects advertising and sales promotion expenses to be 10% of net sales. The higher spending mainly relates to an increase in brand investments to support its innovation pipeline and customer engagement efforts. The effective tax rate is anticipated at 22-23%.
Consequently, adjusted earnings for fiscal 2022 are estimated to be $5.40-$5.70 per share, suggesting a year-over-year decline of 26-21%. On a GAAP basis, earnings per share are anticipated to be $5.05-$5.35, indicating a 9-4% decline from the year-ago period. The company notes that adjusted earnings per share will exclude long-term investments in digital capabilities and productivity enhancements to provide greater visibility to the underlying operating performance.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -24.88% due to these changes.
VGM Scores
At this time, Clorox has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Outlook
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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