Clorox Cleans Up in 1Q

The Clorox Company (CLX - Analyst Report) reported strong results for the first quarter of fiscal 2010 with earnings of $1.11 per share. Earnings were well above the Zacks Consensus Estimate of 95 cents and up 23.3% year-over-year.

Net sales for the quarter were almost flat year-over-year, declining marginally by 0.8%. The decline was primarily attributable to unfavorable foreign exchange rates, unfavorable product mix and higher trade-promotion spending. These factors were partially offset by the benefit of price increases, especially in the International segment.

Total volume increased 1%, primarily due to higher shipments of disinfecting wipes and bottled salad dressing, which were largely offset by lower shipments of trash bags and the company's exit from its private-label food bags business.

Segment-wise

In the Cleaning segment, sales increased 3% and volumes grew 4%. Volume increase was driven by increased shipments of disinfecting products to meet demand associated with the H1N1 flu pandemic. In addition, increased shipments of all-purpose cleaner and all-time record shipments of toilet bowl cleaners also contributed positively to the top-line. These were partially offset by lower shipments of auto-care products.

In the Household segment sales declined 11% while volumes declined 7%. The segments volume decline was driven by lower shipments of Glad products and the company's exit from the private-label food bags business. These results were partially offset by all-time record shipments of cat litter.

The Lifestyle segment witnessed 3% sales growth and 4% volume growth. The volume growth was primarily driven by the Burt's Bees acquisition. Increased shipments of Hidden Valley bottled salad dressing, due to highly effective marketing, also contributed positively to the top line.

In the International segment, sales grew 4% and volumes grew 3% year-over-year. Volume growth was driven by increased shipments of bleach and other disinfecting products in Latin America driven by increased demand as a result of the H1N1 flu pandemic.

Gross margin expanded 450 basis points (bps) to 45.1% versus 40.6% in the comparable prior-year quarter. The increase was primarily driven by the benefit of lower commodity costs, strong cost savings and price increases. However, the operating margin contracted 53 bps to 12.8% from 13.3% in the prior-year period, primarily attributable higher advertising expenses.

The company had cash and cash equivalents of $237 million and capital expenditures for the quarter amounted to $34 million. Based on the results for the first quarter, the company raised its guidance for fiscal 2010. Annual earnings are now expected to be in the range of $4.05 to $4.20 per share, reflecting a 17% growth over the prior-year period.

Net sales growth for the year is reiterated in the 1% to 2% growth range, while gross margins are expected to improve in the 100 to 150 basis points range.

The company continues to expect that the foreign currency transaction impact will remain high due to currency exchange restrictions and costs in Venezuela.

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