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Clorox (CLX) Q2 Earnings, Sales Top Estimates on Strong Demand

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Zacks Equity Research
·6 min read
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The Clorox Company CLX reported better-than-expected top and bottom lines in second-quarter fiscal 2021. Moreover, earnings and sales grew year over year. The company gained from strong consumer demand for its products, which resulted in double-digit sales growth in three of its four segments. Further, it is progressing well with its IGNITE strategy. The company also raised its sales view for fiscal 2021.

Although shares of this Zacks Rank #3 (Hold) company have declined 3.9% in the past three months, it fared better than the industry’s 7.9% fall.

Q2 Highlights

Adjusted earnings increased 39% year over year to $2.03 per share, beating the Zacks Consensus Estimate of $1.73. The upside was mainly driven by higher net sales and improved margins.

The company posted net sales of $1,842 million, up 27% year over year, surpassing the Zacks Consensus Estimate of $1,766 million. This was backed by double-digit sales growth in the majority of the segments, fueled by strong demand for its products due to the coronavirus outbreak and related shift in trends, particularly the stay-at-home trend. Net sales also included 1 point gain from the acquisition of the majority shares of the company’s joint venture in Saudi Arabia and adverse foreign currency impact. Organic sales increased 26% in the quarter.

The Clorox Company Price, Consensus and EPS Surprise

The Clorox Company Price, Consensus and EPS Surprise
The Clorox Company Price, Consensus and EPS Surprise

The Clorox Company price-consensus-eps-surprise-chart | The Clorox Company Quote


Gross margin expanded 130 basis points (bps) to 45.4% in the fiscal second quarter. This marked the company’s ninth straight quarter of gross margin expansion. The rise in gross margin was driven by gains from sturdy volume growth, cost-saving initiatives and lower trade promotion, somewhat marred by higher expenses for manufacturing and logistics.

Segmental Discussion

Sales of the Health and Wellness segment rose 42% to $817 million on double-digit growth in two of the three business units. Higher shipments of cleaning and disinfecting products across the U.S. retail and professional portfolios, owing to increased demand, were the primary growth drivers.

The Household segment’s sales improved 20% to $411 million, driven by growth across all business units. Particularly, the company witnessed strong double-digit growth in the Grilling and Litter businesses, owing to much stronger consumer demand.

Sales in the Lifestyle segment grew 9% to $317 million on double-digit sales growth in the Food and Water Filtration businesses on higher shipments, stemming from strong consumer demand and strategic brand investments. However, the Natural Personal Care business witnessed a double-digit decline. The brand continued to face headwinds as it adapts to the new consumer habits for shopping and usage.

In the International segment, sales increased 23% to $297 million from the year-ago quarter on increased shipments due to the ongoing strong demand for disinfecting and other household products. Notably, the company witnessed double-digit volume growth across all international regions. The segments’ sales also included gains of 9 points from the Saudi joint venture acquisition, partly mitigated by 4 points of negative currency impact. Organic sales for the segment rose 18%.

Financials

Clorox ended the quarter with cash and cash equivalents of $732 million and long-term debt of $2,483 million. In the first six months of fiscal 2021, the company generated $629 million of net cash from continuing operations.

Fiscal 2021 Guidance

Clorox updated its outlook for fiscal 2021 based on the current trends, expectations of persistent strong demand for cleaning and disinfecting products globally, and aggressive investments in its global portfolio.

It now envisions sales growth of 10-13% both on a reported and organic basis in fiscal 2021 compared with double-digit sales growth, on a reported basis, mentioned earlier. Further, organic sales were earlier anticipated to be up 5-9%. It now predicts sales in the second half of fiscal 2021 to remain relatively flat versus the previously mentioned decline. However, the sales projection for the second half of fiscal 2021 compares with 19% growth witnessed in the second half of fiscal 2020. The sales guidance also assumes a 1-point currency headwind and a 1-point gain from its Saudi joint venture acquisition.

Gross margin for fiscal 2021 is now estimated to witness a slight decline compared with the previously mentioned flat gross margin. The revised guidance stems from a rise in commodity costs as well as increased expenses for manufacturing and logistics.

SG&A expenses, as a percentage of sales, are still expected to be 14% due to continued investments in long-term growth initiatives. The company expects advertising and sales promotion expenses of 11% of net sales, based on 12% growth witnessed in the second half of fiscal 2020. The higher spending mainly relates to an increase in brand investments to support its robust innovation pipeline and customer engagement efforts. Effective tax rate is anticipated to be 21-22%.

Driven by the strong sales projections, earnings for fiscal 2021 are now estimated to be $8.05-$8.25 per share, suggesting year-over-year growth of 9-12%. Earlier, the company anticipated 5-8% growth in earnings per share to $7.7-$7.95. It now assumes a contribution of 45-50 cents from the increased stake in its Saudi joint venture compared with a contribution of 45-53 cents mentioned earlier.

Stocks to Consider

Inter Parfums, Inc. IPAR delivered an earnings surprise of 18.7%, on average, in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nu Skin Enterprises, Inc. NUS has a long-term earnings growth rate of 8.1% and a Zacks Rank #2 (Buy).

Helen of Troy Limited HELE has a long-term earnings growth rate of 9.7%. The company presently carries a Zacks Rank #2.

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The Clorox Company (CLX) : Free Stock Analysis Report

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