Why Is Clorox Company (CLX) Up 13.9% Since the Last Earnings Report?
A month has gone by since the last earnings report for Clorox Company (The) CLX. Shares have added about 13.9% in that time frame, outperforming the market .
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Clorox Amends FY17 View on Robust Q2 Earnings & Sales
Clorox released solid second-quarter fiscal 2017 results, 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 $0.11 related to the impairing of some assets of the Aplicare skin antisepsis business within the Cleaning segment, which was recorded under Other Expense. 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 $0.05, compared with the previous range of $0.10–$0.15 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 over the same time frame.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more upward momentum. There have been three upward revisions in the last two months.
Clorox Company (The) Price and Consensus
Clorox Company (The) Price and Consensus | Clorox Company (The) Quote
VGM Scores
At this time, Clorox Company's stock has a subpar score of 'D' on both growth and momentum front. Following the exact same course, the stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
While estimates have been broadly trending upward for the stock, the magnitude of these revisions indicates a downward shift. Interestingly the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Clorox Company (The) (CLX): Free Stock Analysis Report
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