Clorox (CLX) Navigates Challenges, Poised for Sustained Growth
The Clorox Company CLX is actively addressing significant disruptions caused by cyberattacks on its supply-chain networks. These extensive attacks impacted critical areas of operations, presenting a notable setback. Despite this challenge, the company remains on track for long-term growth. This outlook is fueled by a strategic focus on integrating digital products and services, coupled with targeted pricing strategies and cost-saving measures.
Additionally, there is a concerted effort underway to restructure the corporate framework and bolster the commitment to research and development, further strengthening CLX's growth potential.
The recent challenges faced by Clorox were evident in its financial performance, with organic sales decreasing 18% and earnings per share declining 47%. Nonetheless, management remains committed to achieving mid-single digit organic sales growth in the fiscal second quarter.
The shares of the Zacks’s Rank #3 (Hold) company have decreased 9.7% in the past six months compared with the industry’s decline of 1.4%. The Zacks Consensus Estimate for fiscal 2024 sales and earnings indicates a year-over-year decline of 2.4% and 9.8%, respectively.
Image Source: Zacks Investment Research
Momentary Setback: What’s Ahead?
On its fiscal first-quarter earnings call, Clorox stated that it had a positive start to the fiscal year, highlighting business achievements and margin improvements, until it got hit by the cyberattack.
Its diverse brand portfolio continues to drive its success with its flagship household cleaning product in the United States generating over $500 million in quarterly sales. Additionally, Glad bags and wraps contributed 11% to overall revenues, totaling $155 million.
A notable highlight was a 28% year-over-year increase in e-commerce sales during the fiscal first quarter. This outpaced Clorox's overall sales growth and underscored the growing importance of digital channels in its business model.
Despite the challenges posed by cyberattack, which led to a 20% year-over-year decrease in net sales owing to a decline of 26% in shipment volumes, management still remains optimistic. Immediate priorities include restoring inventory, merchandising and distribution networks. For the long term, Clorox is focusing on product innovation, an effective pricing policy and strategic measures to counteract rising input costs, aiming to ensure continued growth and profitability.
The company still foresees approximately $200 million worth of total supply chain inflation. This includes rising costs of commodities, manufacturing, logistics, wages, chemicals, diesel, solvents and agricultural inputs. Management remains confident in regaining lost sales, buoyed by brand loyalty and planned inventory rebuilds. However, this may take some time.
Long-term Growth Potential
Clorox is strategically poised for future growth as it goes ahead with the implementation of a streamlined operating model, set to be fully operational by the end of fiscal 2024. The model is designed to improve adaptability to evolving consumer preferences and to foster a more rapid pace of innovation. Once implemented, management anticipates making annual cost savings in the range of $75-$100 million, a strategic move expected to significantly bolster future cash flows.
The company's recent initiatives have already started yielding positive results. The introduction of pricing and cost-saving measures has been a driving force behind a notable gross margin expansion. In the first quarter of fiscal 2024, Clorox achieved a 240-basis point increase in gross margin year over year, reaching 42.7%. This represents the fourth consecutive quarter of gross margin expansion.
Additionally, Clorox's international business segment is showing impressive progress. This improvement has been propelled by strategic acquisition of a majority stake in a joint venture in Saudi Arabia, a move that underscores Clorox's commitment to expanding its global footprint and enhancing its presence in key international markets.
3 Promising Bets
Sysco Corporation SYY, a food and related product company, currently carries a Zacks Rank #2 (Buy). SYY delivered a back-to-back positive earnings surprise in the past two quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Sysco’s current fiscal-year sales and earnings suggests growth of 4.1% and nearly 8%, respectively, from the year-ago reported numbers.
Ingredion Incorporated INGR, which produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions, holds a Zacks Rank #2. INGR delivered a positive earnings surprise of 23.9% in the last reported quarter.
The Zacks Consensus Estimate for Ingredion Incorporated’s current financial-year sales and earnings suggests growth of around 5% and 24.7%, respectively, from the year-ago reported numbers.
Nomad Foods NOMD manufactures, markets, and distributes a range of frozen food products. It currently has a Zacks Rank #2. NOMD has a trailing four-quarter earnings surprise of 7.7%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales suggests growth of 6.6% from the year-ago reported figure.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Clorox Company (CLX) : Free Stock Analysis Report
Sysco Corporation (SYY) : Free Stock Analysis Report
Ingredion Incorporated (INGR) : Free Stock Analysis Report
Nomad Foods Limited (NOMD) : Free Stock Analysis Report
