Clorox (CLX) Trims FY18 View Despite Q1 Earnings & Sales Beat

The Clorox Company CLX posted robust first-quarter fiscal 2018 results, wherein both top and bottom line topped estimates and grew year over year. Notably, earnings marked the fourth straight quarterly beat, while sales surpassed estimates for the second consecutive quarter.

Q1 Highlights

Quarterly earnings from continuing operations of $1.46 per share jumped 7% year over year and surpassed the Zacks Consensus Estimate of $1.41. Results primarily gained from solid sales and gross margin expansion.

Clorox Company (The) Price, Consensus and EPS Surprise

Clorox Company (The) Price, Consensus and EPS Surprise | Clorox Company (The) Quote

Net sales of $1,500 million advanced nearly 4% year over year, also coming ahead of the Zacks Consensus Estimate of $1,478 million. The top line beat was driven by growth across the United Sates and International businesses, as well as 4% rise in volumes. Growth at the International business was backed by increased pricing, offset by unfavorable mix.

Clorox’s gross margin expanded 50 basis points (bps) to 44.9% in the quarter, thanks to efficient cost savings and improved pricing in the International business, somewhat offset by increase in manufacturing and logistics expenses as well as greater commodity expenses.

Revenue by Segment

Sales in the Cleaning segment improved 5% to $559 million, mainly driven by strength in Home Care with higher shipments for several Clorox branded products, particularly Clorox disinfecting wipes, along with Scentiva wipes and sprays introduced in January 2017.

Household sales grew 5% to $441 million aided by volume growth across all businesses, particularly Cat Litter. Results also benefited from increased merchandising activity for product innovation in Bags and Wraps and greater shipments of Glad premium trash bags.

Sales at the Lifestyle segment rose 4% to $246 million driven by strength in Burt's Bees Natural Personal Care, which witnessed double-digit volume growth. Top-line growth also reflected the benefits of improved sales in Dressings and Sauces, supported by increased merchandising for bottled Hidden Valley ranch products.

In the International business segment, sales grew 1% to $254 million driven by improved pricing, partly negated by volume declines, particularly in Argentina.

Financials

Clorox ended the quarter with cash and cash equivalents of $468 million, and long-term debt of $1,787 million. In first-quarter fiscal 2018, the company generated $257 million of net cash from continuing operations.

Looking Ahead

Following the first-quarter results, the company slashed guidance for fiscal 2018 to include the hurricane-related impacts and the divestiture of the Aplicare business in August 2017.

The company now expects fiscal 2018 sales growth in a range of 1-3%, compared with the previous guidance of 2-4% growth. The lowered guidance reflects a slightly less than 1 percentage point reduction in the fiscal year related to the Aplicare divestiture.

Gross margin is now estimated to be down slightly, versus the earlier guidance of expanding slightly. The recent guidance reflects significant cost pressures due to the recent hurricanes, particularly in the second and third quarters.

Driven by an anticipated 10 cent impact from hurricanes, the company now envisions fiscal 2018 earnings from continuing operations to range from $5.47-$5.67 per share, reflecting a 5 cent decline from the previous guidance of $5.52-$5.72 per share. However, the company anticipates the impacts of hurricanes to be partly mitigated by continued strength in its underlying business performance.
 
Clorox currently carries a Zacks Rank #4 (Sell). While shares of the company have increased 4.4% year to date, Clorox underperformed the industry’s growth of 13.6%.

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