Why Is Clorox (CLX) Down 6.7% Since its Last Earnings Report?
A month has gone by since the last earnings report for The Clorox Company CLX. Shares have lost about 6.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is CLX due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Clorox Beats on Q2 Earnings, Raises FY18 EPS View
The Clorox Company posted robust second-quarter fiscal 2018 earnings per share which beat estimates, while revenues lagged the same. Notably, earnings marked the fifth straight quarterly beat, while sales missed estimates for after two consecutive beats.
Q2 Highlights
Quarterly earnings from continuing operations of $1.77 per share jumped 55% year over year and surpassed the Zacks Consensus Estimate of $1.22. Results primarily gained from solid sales and lower effective tax rate, offset by fall in gross margin.
Net sales of $1,416 million advanced nearly 0.7% year over year, but lagged the Zacks Consensus Estimate of $1,430 million. The top-line growth was driven by improvement across the International, Lifestyle and Cleaning segments, backed by increased prices. This was partly offset by unfavorable mix.
Clorox witnessed significant pressure on gross margin, which contracted 170 basis points (bps) to 43% in the quarter. Lower margins can be attributed to elevated input costs associated with commodities and further contraction of the transportation market. Additionally, results were hurt by strategic investments in growth and cost savings initiatives, slightly mitigated by benefits of cost savings.
Revenue by Segment
Sales in the Cleaning segment improved 1% to $472 million, mainly driven by strength in Home Care with higher shipments of Clorox disinfecting wipes, along with the launch of Scentiva branded products. This was partly offset by fall in Professional Products business, particularly due to the sale of Aplicare business in August 2017 and unfavorable mix within the segment.
Household sales declined 3% to $410 million due to lower volumes in the Bags & Wraps, Cat Litter and Charcoal businesses, partly negated by double-digit gains in the Digestive Health business due to strength in the e-commerce channel.
Sales at the Lifestyle segment improved 3% to $268 million driven by strength in Water Filtration, which witnessed double-digit volume growth, alongside the launch new Brita Long Last filters and Brita Stream pitchers. Top-line growth also reflected the benefits of improved sales in the Natural Personal Care business.
In the International business segment, sales grew 4% to $266 million on the back of improved pricing. Volumes remained flat as gains in Canada were offset by decline in certain Asian and Latin American countries.
Financials
Clorox ended the quarter with cash and cash equivalents of $489 million, and long-term debt of $1,788 million. In first six months of fiscal 2018, the company generated $322 million of net cash from continuing operations.
Looking Ahead
Following the second-quarter results, the company reiterated sales guidance for fiscal 2018, while it raised the earnings per share view to include the benefits of the new tax reform.
The company continues to expect fiscal 2018 sales growth in a range of 1-3%. The guidance includes nearly 1 percentage point reduction in the fiscal year related to the Aplicare divestiture. It also reflects an estimated 3 percentage point gain from product innovation.
Gross margin is now estimated to decline modestly due to elevated input costs associated with commodities and tightening of the transportation market. This compares with the earlier guidance of being down slightly.
The company now envisions effective tax rate of 23-24% for fiscal 2018 compared with 32-33% guided earlier. In the long term, the company expects effective tax rate in the mid-20s range.
Consequently, the company now anticipates fiscal 2018 earnings from continuing operations to range from $6.17-$6.37 per share, up from the previous guidance of $5.47-$5.67 per share. The company expects fiscal 2018 earnings per share to include 70-75 cents per share gain from the new tax reform, which will be partly offset by lower gross margin.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.
Clorox Company (The) Price and Consensus
Clorox Company (The) Price and Consensus | Clorox Company (The) Quote
VGM Scores
At this time, CLX has an average Growth Score of C, a grade with the same score on the momentum front. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for momentum, value and growth investors.
Outlook
Estimates have been broadly trending upward for the stock and the magnitude of these revisions has been stable. Notably, CLX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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