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Clorox (CLX) Benefits From Strategic and Pricing Efforts

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The Clorox Company (CLX - Free Report) appears well-poised for growth, thanks to its sturdy growth initiatives. Significant gains from pricing actions and cost-saving initiatives have been aiding the company’s margins for a while. Also, results are benefiting from a solid innovation pipeline and digital transformation. CLX has been on track with its streamlined operating model, which aims to improve efficiency.

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Clorox’s robust pricing and cost-saving initiatives, which offset the elevated manufacturing and logistic costs, bode well. This led to a gross margin expansion of 730 basis points (bps) year over year during the second quarter of fiscal 2024. It marked the fifth consecutive quarter of gross margin expansion on the back of pricing and cost savings, somewhat offset by adverse foreign currency fluctuations. For fiscal 2024, the gross margin is projected to expand 200 bps year over year.

Clorox is on track with the IGNITE strategy, its integrated strategy, formulated on a sturdy foundation of its 2020 Strategy. This initiative mainly focuses on the expansion of the key elements under the 2020 Strategy to pace up innovation in each area of business. The IGNITE strategy encompasses the long-term financial targets of achieving net sales growth of 3-5%, EBIT margin expansion of 25-50 basis points and free cash flow generation of 11-13% of sales.

Management announced a streamlined operating model to create a faster, simpler company through the Reimagine Work under its IGNITE strategy. The operating model helps increase efficiencies and transforms the company's operations in the areas of the supply chain, digital commerce, innovation and brand building over the long term.

The streamlined operating model is expected to enhance the company's ability to respond more quickly to changing consumer behaviors, innovate faster and increase cash flow as a result of cost savings that will be generated primarily in the areas of selling and administration, supply chain, marketing, and research and development. Once fully implemented, the company expects cost savings of approximately $75 million to $100 million annually.

Clorox had announced plans to invest $500 million in the next few years in transformative technologies and processes. The investments began in the first quarter of fiscal 2022 and include the replacement of the company's enterprise resource planning system, its transition to a cloud-based platform and the implementation of a suite of other digital technologies. Of the $500-million investment, the company will record 55% as incremental operating costs within selling and administrative expenses to be adjusted from the reported earnings per share (EPS) for purposes of disclosing adjusted EPS in the next few years.

In addition, Clorox, which shares space with Church & Dwight (CHD - Free Report) , Colgate (CL - Free Report) and Procter & Gamble (PG - Free Report) , is experiencing strength in the core International business as it continues to build the segment's Go Lean strategy. These efforts will help in accelerating profitable growth for the segment. Management continues to explore international opportunities. In second-quarter fiscal 2024, sales in the International segment rose 9% year over year, buoyed by a volume rise of six points and a 25-point gain from a favorable price mix. Organic sales for the segment improved 31%. Going forward, this segment is likely to continue performing well and boost the company’s overall results.

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