Clorox (CLX) Amends FY17 View on Robust Q2 Earnings & Sales

The Clorox Company CLX released solid second-quarter fiscal 2017 results, wherein both top line and bottom line surpassed our estimate and grew year over year. While earnings benefited from strong sales and improved cost-savings, top line triumphed upon robust volume growth. Backed by the year-to-date results, the company revised its earnings and sales guidance for fiscal 2017.

Consequently, shares of this consumer products retailer rose 1.7% in after-hours trading yesterday. Moreover, Clorox’s shares have increased 6.1% in the last three months, significantly outperforming the Zacks categorized Soap & Cleaning Preparations industry’s growth of 0.3% in the same time frame.



Quarterly earnings from continuing operations of $1.25 per share jumped 9.6% year over year and surpassed the Zacks Consensus Estimate of $1.22. Results gained from solid sales and cost savings that were offset by currency headwinds, and higher manufacturing and logistics expenses. Further, the bottom line excludes a non-cash charge of 11 cents related to the impairing of some assets of the Aplicare skin antisepsis business within the Cleaning segment, which was recorded under Other Expense.

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Including this charge, the company reported earnings per share of $1.14, flat with the prior-year quarter.
 
Net sales of $1,406 million advanced nearly 4.5% year over year, marginally surpassing the Zacks Consensus Estimate of $1,405 million. Notably, this marked the company’s fourth consecutive sales beat.

During the quarter, gains from 8% volume growth, higher pricing at the International business and benefits from RenewLife (acquired in May 2016) were somewhat negated by unfavorable mix and slightly less than 2 points impact from unfavorable currency effects. On a currency-neutral basis, revenues increased 6% in the reported quarter.

Clorox’s gross margin expanded 10 basis points (bps) to 44.7% in the quarter, driven by gains from efficient cost savings and improved international pricing partly negated by increase in manufacturing and logistics expenses.

Revenue by Segment

Sales in the Cleaning segment improved 3% to $469 million, with a 10% rise in volumes. Volumes mainly gained from the strength in Home Care, particularly Clorox disinfecting wipes, along with strong volumes at the Professional Products’ cleaning brands.

Household sales grew 12% to $421 million, with volumes rising 11%. Volumes were mainly aided by the RenewLife acquisition and increased shipments at Charcoal, along with strong volumes at Glad premium trash bags.

Sales at the Lifestyle segment rose 4% to $260 million, on the back of 5% advancement in volumes, which in turn benefited from growth witnessed in Natural Personal Care owing to innovation in Burt's Bees lip care and color products.

In the International business segment, sales dipped 2% to $256 million, reflecting the negative impact of currency. On a currency-neutral basis, sales jumped 8% year over year. Volumes at the segment improved 2%, mainly driven by gains in Canada (including benefits from Renew Life’s buyout), partly neutralized by weakness noted in some Latin American nations like Argentina.

Financials

Clorox ended the quarter with cash and cash equivalents of $414 million, and long-term debt of $1,390 million. During first-half fiscal 2017, the company generated $271 million of net cash from continuing operations compared with $178 million in the year-ago period.

Looking Ahead

Backed by robust sales growth in the fiscal second quarter, Clorox raised the lower end of its sales guidance and tweaked the upper-end of its earnings forecast.

The company now expects fiscal 2017 sales growth in a range of 3–4%, compared with the prior forecast of 2–4%. The revised sales outlook incorporates the sales gains witnessed in first-half fiscal 2017, as well as nearly 2 points gains from the RenewLife buyout. This was offset by an adverse currency impact of 1 point. On a currency-neutral basis, sales growth is still anticipated to range from 4–6% for the fiscal.

Further, EBIT margin is still estimated to expand in a band of 25–50 bps, mainly backed by lower selling and administrative costs, as a percentage of sales.

Management further stated that the Accounting Standards Update (ASU) 2016-09 benefit on earnings is now reduced by 5 cents, compared with the previous range of 10–15 cents per share. Consequently, the company slashed the higher-end of its earnings forecast for fiscal 2017 to $5.23–$5.38 per share from $5.23–$5.43 expected earlier. Moreover, the company revealed that the revised earnings forecast incorporates gains from strong year-to-date sales growth, product innovations in the second half of the fiscal and projections for EBIT margin expansion in the fiscal.

Clorox Company (The) Price, Consensus and EPS Surprise

 

Clorox Company (The) Price, Consensus and EPS Surprise | Clorox Company (The) Quote

Zacks Rank & Key Picks

Clorox currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Unilever Plc UL, which carries a Zacks Rank #2 (Buy). Other stocks worth considering in the consumer staples sector include Ollie's Bargain Outlet Holdings Inc. OLLI and Blue Buffalo Pet Products Inc. BUFF, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Unilever, with a long-term EPS growth rate of 5.8%, has witnessed positive estimate revisions in the last seven days and has a VGM Style Score of “A”.

Ollie's Bargain has to its credit a spectacular earnings history as the company delivered an average positive earnings surprise of 17.6% in the past four quarters. Moreover, its long-term EPS growth rate of 18.9% and positive estimate revisions in the past 30 days help it stand strong against the industry.

Blue Buffalo, with a long-term EPS growth rate of 14%, flaunts a solid earnings history having delivered an average positive surprise of 10.4 in the trailing four quarters.

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