The Clorox Company CLX is progressing well with its 2020 Strategy, which is aimed at improving the product categories and expanding overall market share. The whole strategy includes accomplishing certain long-term aspirations such as net sales growth of 3-5%, EBIT margin expansion of 25-50 basis points (bps) and free cash flow generation of 10-12% of sales, all on a yearly basis.
Smooth execution of the 2020 Strategy is well reflected in the company’s price performance. Shares of this leading manufacturer and marketer of consumer products have gained 24.7% in a year, faring better than the industry’s 15.8% rally. Also, this Zacks Rank #2 (Buy) stock has significantly outperformed the S&P 500 index’s 1.4% gain.
Let’s Delve Deep
The 2020 Strategy is meant to be achieved through key growth drivers like investment in brands; development of e-commerce; technological advancements; enhancement of growth culture and focus on the 3Ds - desire, decision and delight.
As part of the strategy, Clorox is focused on e-commerce and brand management initiatives. The company is making strategic partnerships with retail customers and developing capabilities both in physical world and online. Further, it has improved digital capabilities generating strong e-commerce sales, which is now a significant revenue contributor. Notably, the company is ahead of track to achieve its 2020 target of $500 million from e-commerce sales.
Furthermore, Clorox's diversified brand portfolio positions it well to deliver growth and sustain in the challenging macro landscape. The company’s approach toward brand management allows each of its brands to develop further through rigorous research and development (R&D), marketing strategies, financial control and operating leverage. Strong investments in demand building including digital marketing, e-commerce and product innovation pipeline is an added positive.
Although Clorox is witnessing higher commodity as well as manufacturing and logistics expenses, these costs did not hurt gross margin in the last reported quarter. In fact, the gross margin expanded 70 bps in second-quarter fiscal 2019, benefiting from price increases and cost-saving efforts. Moreover, the company’s Go Lean strategy in International remains focused on improving margins through operational efficiencies.
Robust Surprise Trend & Outlook
Shedding light upon Clorox’s quarterly performances, we note that it has a robust surprise trend. Clorox has surpassed earnings estimates for the ninth straight quarter, with sales beat in seven of the trailing 12 quarters. The company has posted an average trailing four-quarter earnings beat of 4.6%.
In addition, an upbeat outlook for fiscal 2019 drives optimism. Clorox projects sales growth of 2-4% from the fiscal 2018 level. This improvement will be backed by innovations that are likely to deliver about 3 percentage points of additional sales. The top line is also likely to reflect 3 percentage points benefit, on a combined basis, from the Nutranext acquisition and the Aplicare divestiture. However, this guidance includes a negative impact of about 3 percentage points from currency rates.
Management anticipates earnings per share of $6.20-$6.40 from continuing operations, which includes nearly 8-12 cents benefit from the Nutranext acquisition. While the Zacks Consensus Estimate of $6.33 for fiscal 2019 remained stable in the past 30 days, the consensus mark of $6.73 for fiscal 2020 has moved up by a penny.
All the aforementioned growth drivers are likely to position Clorox well in the future, thus offsetting the higher costs pressures. Moreover, the company’s expected long-term earnings growth rate of 6.4%, more than 5.5% for the industry, highlights its inherent strength. Clorox also has a Growth Score of B.
Three Better-Ranked Stocks in the Consumer Staples Space
Medifast, Inc. MED has an impressive long-term earnings growth rate of 20% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Procter & Gamble Company PG has outpaced the earnings estimates in each of the trailing four quarters by an average of 3.1%. The company has a Zacks Rank #2.
General Mills, Inc. GIS is also a Zacks Rank #2 stock, which has delivered an average trailing four-quarter positive earnings surprise of 6%.
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