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Clorox Posts Impressive 2Q Results

Zacks Equity Research

California-based Clorox Corporation (CLX) came up with impressive earnings and sales comparisons for the second-quarter of fiscal 2013. The company’s adjusted earnings of 90 cents per share jumped approximately 13.9% from the year-ago quarter’s earnings of 79 cents.

Quarterly earnings of this Zacks Rank #3 (Hold) company also exceeded the Zacks Consensus Estimate of 81 cents, reflecting a surprise of 11.1%.

Including the net proceeds from sale leaseback transaction of its Oakland office, the company reported earnings of 93 cents per share.

The company’s earnings benefited from improvements in revenues as well as gross margins, offset by higher selling and administration expenses as it continues to invest in information technology (IT) systems.

Net sales elevated 8.5% year over year to $1,325 million from $1,221 million in the year-ago quarter, mainly due to improved prices and volumes. Moreover, total revenue came in ahead of the Zacks Consensus Estimate of $1,270 million. Total volume increased 5% from the comparable quarter last year.

Revenue by Segment

Sales in the Cleaning segment jumped 15% to $425 million, primarily due to a 13% volume growth and higher prices. During the quarter, the segment witnessed volume growth in its Professional Products business, Home Care unit and the Laundry business.

Household sales increased 7% to $357 million, while volume inched up 1%. Volumes in the quarter were benefited from increased shipments in the Charcoal business, partially offset by volume decline in volume of Cat Litter and Glad products.

Sales at the Lifestyle segment hiked 8% to $237 million, primarily due to an increase of 7% in volume. Volume growth in the Burt's Bees and Food businesses was responsible for the growth.

In the International business segment, Clorox’s sales improved 3% to $306 million, benefiting from price increases, partially offset by a 3% volume decline. The segment’s Base business in Latin America and Canada remained weak, while other regions did well during the quarter.

Costs and Margins

Clorox’s gross margin expanded 100 basis points (bps) to 42.5% from 41.5% in the year-ago quarter. Solid costs savings and improved prices led to increase in margins, while inflation played the spoilsport impacting manufacturing and logistics costs as well as other supply chain costs.

Advertising costs remained almost flat year over year at $116 million, while as a percentage of revenue it contracted 60 basis points to 8.8%. The company’s adjusted operating income stood at $243 million compared with $208 million in the second quarter of fiscal 2012. Consequently, operating margin improved 130 bps to 18.3%.

Balance Sheet and Cash Flow

Clorox ended the quarter with cash and cash equivalents of $445 million and long-term debt of $2,169 million. During the first half of fiscal 2013, the company generated $325 million net cash from operations, exhibiting an increase of $157 million from the year-ago period.

Guidance Raised

Bolstered by better-than-expected quarterly performance, Clorox raised its sales growth forecast to 3%–5% for fiscal 2013 from 2%–4% forecasted earlier, driven by better category-wise performances, market share gains and further product innovation across its brands.

The company expects operating income margin to expand by 25 to 50 basis points in fiscal 2013, on the back of strong cost savings, the benefit of price increases and flat commodity costs forecasts.

Further, the company now anticipates annual earnings of $4.25–$4.35 per share in fiscal 2013, up from previous guidance range of $4.20–$4.35. Moreover, Clorox guided expenditures toward systems and facilities development and other restructuring initiatives to be in the range of $50–$55 million in fiscal 2013.

Other Stocks to Consider

Other stocks in the same industry that are worth considering include Church & Dwight Company Inc. (CHD), Colgate-Palmolive Company (CL) and Proctor & Gamble Company (PG). All these companies carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CLX

Read the Full Research Report on PG

Read the Full Research Report on CL

Read the Full Research Report on CHD

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