Rating Action: Moody's changes Clorox's outlook to stable; affirms Baa1, Prime-2 ratingsGlobal Credit Research - 14 Feb 2022New York, February 14, 2022 -- Moody's Investors Service ("Moody's") today affirmed the ratings of The Clorox Company ("Clorox") including the company's Baa1 senior unsecured rating and its Prime-2 commercial paper rating. The rating outlook was changed to stable from positive.The change in outlook to stable from positive reflects Moody's view that operating performance deterioration, caused by expected volume declines after an initial pandemic surge, and inflationary pressures on margins due to an unprecedented cost and supply chain environment, will lead to a relatively long path to full recovery in key credit metrics. As a result, Moody's expects Clorox's will remain best positioned at current rating levels for at least the next 12-18 months.The rating affirmations reflect the strength of Clorox's well recognized brands, its leading market positions, good business diversity, and Moody's expectation that Clorox will return to low-to-mid single-digit organic sales growth and begin margin recovery by late fiscal 2022 (ending June 2022) or early fiscal 2023. Improvement will come from easing comparisons, pricing initiatives, in-sourcing of some production and phasing of efficiency and cost cutting plans. Moody's expects that Clorox will look to supplement organic growth with occasional acquisitions but assumes such activity will not be prioritized until metrics are restored to the company's target leverage range of 2.0 to 2.5x.The following ratings/assessments are affected by today's action:Ratings Affirmed:..Issuer: Clorox Company (The).... Commercial Paper, Affirmed P-2....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:..Issuer: Clorox Company (The)....Outlook, Changed To Stable From PositiveRATINGS RATIONALEClorox's Baa1 senior unsecured rating reflects the company's good market position in most of its product categories, strong brand name recognition and solid product innovation, all of which typically gives rise to steady operating earnings and cash flow. While this consistency has been shaken by pandemic induced volatility, Moody's expects that the pressures will begin to abate, assuming the rate of inflation also moderates. Moody's recognizes the company's commitment to maintaining a moderate financial leverage profile, targeting Debt to EBITDA leverage of 2.0x to 2.5x by its measure (2.9x at Q2 ended December). These strengths are partially offset by recently aggressive shareholder returns, including a sizable and rising dividend and large 2021 share repurchases that weakened liquidity just before volume normalization began. In addition, the company needs to continually launch new products with associated marketing and trade promotion support, which requires significant investment and could slow recovery. The company generates a large portion of its revenue from the mature U.S. market and has meaningful customer concentration with the company's top 5 customers generating about 45% of net sales. Clorox is also exposed to volatile raw material and energy prices, and rising labor and transportation costs.Clorox has adequate liquidity. Liquidity is currently weaker than usual because of lower cash flows resulting from compressed margins and a debt maturity in September 2022 of $600 million that is considerably larger than the company's $192 million of cash as of December 2021. The next maturity after 2022 is in December of 2024. We expect free cash flow (after dividends) to be marginal to slightly negative in fiscal 2022, but to improve to around $200 million by fiscal 2023. Clorox's liquidity is thus weakened by the fact that absent refinancing, it would be reliant on a meaningful portion of the revolver to fund the note maturity.Clorox has a $2.2 billion commercial paper ("CP") program that is supported by a $1.2 billion committed revolving credit facility expiring in November 2024. The larger size of the CP program relative to the committed revolver is aggressive and poses liquidity risk. We do not believe that the company will issue CP in excess of the $1.2 billion support provided by its revolver. The company had $300 million of CP outstanding at Q2 ended December 2021. The company has policies in place that limit the amount of funded debt and CP that remain outstanding every year. The revolving credit facility provides for same day funding with no MAC at drawing. We project that the company will remain comfortably in compliance with the facility's 4.0x minimum EBITDA to interest covenant. Per the company's December 2021 compliance certificate the EBITDA to interest covenant was 10.1x.ESG ConsiderationsThe coronavirus outbreak and the government measures put in place to contain it continue to disrupt economies and credit markets across sectors and regions. Although an economic recovery is underway, it is tenuous, and its continuation will be closely tied to containment of the virus. As a result, there is uncertainty around our forecasts. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Volatility can still be expected over the next 12-18 months due to uncertain demand characteristics, channel disruptions, and supply chain disruptions.In terms of other social factors, the company has set several goals including enhancing financial literacy of its employees, maintaining a recordable incident rate of <1.0 with comprehensive safety management, ensuring gender and ethnic pay equity, and achieving gender and ethnic minority representation targets, among other items.Clorox has moderately negative environmental and social risk. Clorox has various commitments to lessen its overall impact on the environment by making sustainability improvements to its product portfolio, making primary packaging recyclable, eliminating PVC in packaging and APE in retail products, and reducing emissions, among other items. Clorox has an "Eco Strategy" that strives to make responsible products responsibly and shrink the company's environmental footprints as it grows.Moody's views Clorox's financial policies as broadly conservative as evidenced by its publicly stated leverage target of 2.0x-2.5x (not including Moody's adjustments). However, the dividend payout is on the high side relative to certain peers and the company's large ($905 million) share repurchase in 2021 was aggressive, given the uncertainties around the pandemic and the expectation that the extraordinary demand the company experienced would inevitably normalize. Clorox is a widely held publicly traded company. Chief Executive Officer ("CEO") and Chairman roles are split, between Linda Rendle (CEO) and Board Chairman and former CEO Benno Dorer.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable outlook reflects Moody's view that demand for Clorox's products will remain solid and that the company will take steps to mitigate the significant cost pressures negatively affecting profitability including raising prices and implementing cost reductions. Moody's also assumes that Clorox will refrain from share repurchases and focus on de-leveraging until reaching its target leverage range. This will translate to debt-to-EBITDA leverage falling below 3.0x and a restoration of positive free cash flow in early 2023.Ratings could be upgraded if the company profitably grows scale and geographic diversity, restores margins and cash flows to or above pre-pandemic levels and maintains conservative financial policies. Clorox would also need to sustain retained cash flow to net debt above 20%, and debt-to-EBITDA leverage below 2.25x.The ratings could be downgraded if there is further deterioration in operating performance, a shift to more aggressive financial policies, debt to EBITDA is sustained above 3.0x, retained cash flow to net debt is sustained below 15%, or liquidity weakens.The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The Clorox Company, based in Oakland, California, manufactures and markets a diverse portfolio of branded consumer products. Some key products include Clorox Bleach, Clorox cleaning products, Pine-Sol cleaners, Liquid Plumr clog removers, Fresh Step cat litter, Glad bags, wraps, and containers, Kingsford charcoal, Hidden Valley dressings and sauces, Brita water-filtration products, and Burt's Bees natural personal care products. The company also markets brands for professional services including Clorox Healthcare and Clorox Commercial Solutions. Clorox is publicly traded and generates roughly $7 billion in annual revenue.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Linda Montag Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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