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Clorox Q3 Earnings Miss Estimates but Up Y/Y

Zacks Equity Research

The Clorox Company (CLX) came up with lower-than-expected financial results for third-quarter fiscal 2014 wherein its earnings of $1.05 per share from continuing operations missed the Zacks Consensus Estimate of $1.08. However, the reported figure rose 5% from the comparable year-ago quarter.

 The year-over-year improvement in results was primarily driven by increased pricing, higher volumes and effective cost management, partially offset by adverse foreign currency exchange rates and rise in manufacturing and logistics costs and commodity costs.

The company’s quarterly earnings were negatively impacted by currency devaluation in Venezuela, which dragged its bottom line by approximately 13 cents per share. Excluding this impact, Clorox’s earnings came at $1.18 per share.

Net sales decreased 2% year over year to $1,386 million from $1,413 million in the year-ago quarter and missed the Zacks Consensus Estimate of $1,431 million. Benefits from increased pricing and favorable mix were more than offset by adverse foreign exchange rates, lower volume and increased trade promotion expenses. Total volume dropped 0.5% in the quarter.

Revenues by Segment

Sales in the Cleaning segment declined 4% to $437 million, primarily due to a 5% fall in volumes, partially offset by favorable mix. During the quarter, the segment witnessed volume decline in its Laundry and Home Care businesses while Professional Products volume improved year over year.

Household sales grew 4% to $428 million primarily due to a 5% rise in volume. Volumes in the quarter mainly benefited from increased shipments in the Glad, Charcoal and Cat Litter businesses. Glad volume increased due to price rise in March and strong sales of a newly launched scented trash bag, while Charcoal volumes rose because of a lower year-over-year comparison and commencement of the grilling season.

Sales at the Lifestyle segment decreased 3% year over year to $237 million, as the benefit of a 1% volume increase was more than offset by higher trade promotion on food business.

In the International business segment, Clorox’s sales declined 6% to $284 million primarily due to adverse foreign currency translation, partially offset by a 1% rise in volume. Excluding currency effect, sales increased 9% year over year. Segment volume grew 1% from the year-ago quarter.

Costs and Margins

Clorox’s gross margin contracted 30 basis points (bps) year over year at 41.8%. The year-over-year decline in gross margin was primarily due to the rise in manufacturing and logistics costs as well as commodity costs, partially offset by increased product pricing and strong cost saving initiatives.

However, earnings from continuing operations before income taxes as a percentage of sales improved 110 bps to 15.4% on the back of lower operating expenses as a percentage of sales, partially offset by a decline in gross margin.

Balance Sheet and Cash Flow

Clorox ended the first nine months of fiscal 2014 with cash and cash equivalents of $364 million and long-term debt of $1,595 million. During the first three quarters of fiscal 2014, the company generated $434 million of net cash from operations against $486 million in the comparable period of fiscal 2013. The decrease was primarily due to higher tax payments and some nonqualified deferred compensation plans.


Anticipating pressures from unfavorable foreign currency exchange rates and increased commodity costs, Clorox has lowered its sales and earnings forecasts for fiscal 2014. The company now expects sales to decline marginally in the fiscal instead of the 1%–2% increase projected earlier.

Further, earnings per share are now expected to be $4.25–$4.35, down from earlier forecast of $4.40–$4.55. Currently, the Zacks Consensus Estimate is pegged at $4.46 per share.

However, the company still expects operating margin expansion to range from flat to 25 bps in fiscal 2014. Effective tax rate is anticipated to be approximately 35%.

Along with the earnings release, the company has provided its outlook for fiscal 2015. Although Clorox projects sales in the fiscal to remain flat on a year-over-year basis, operating margin is expected to expand in the range of 25–50 bps. Further, the company expects earnings to come in between $4.35 and $4.50 per share in the fiscal. Currently, the Zacks Consensus Estimate is pegged at $4.77 per share.

Other Stocks to Consider

Currently, Clorox carries a Zacks Rank #4 (Sell). However, some better-ranked stocks in the consumer staples sector include B&G Foods Inc. (BGS), McCormick & Company, Inc. (MKC) and Unilever plc (UL). While B&G Foods sports a Zacks Rank #1 (Strong Buy), McCormick and Unilever have a Zacks Rank #2 (Buy).

Read the Full Research Report on CLX
Read the Full Research Report on UL
Read the Full Research Report on BGS
Read the Full Research Report on MKC

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