Back to top

Image: Bigstock

Why Is Clorox (CLX) Up 8% Since Last Earnings Report?

Read MoreHide Full Article

It has been about a month since the last earnings report for Clorox (CLX - Free Report) . Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Clorox due for a pullback? 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 Q1 Earnings and Sales Beat Estimates

Clorox reported robust first-quarter fiscal 2019 results, wherein the bottom and top lines surpassed the Zacks Consensus Estimate and improved year over year. Notably, this marked the company’s eighth straight quarter of earnings beat, with revenues outpacing estimates after a miss in the previous quarter.

Q1 Highlights

Quarterly earnings from continuing operations of $1.62 per share increased 11% year over year and surpassed the Zacks Consensus Estimate of $1.59. The bottom-line improvement was mainly backed by a lower tax rate along with higher sales and gains from cost savings.

Net sales of $1,563 million advanced 4% year over year and came ahead of the Zacks Consensus Estimate of $1,537 million. The year-over-year top-line improvement was driven by 3 percentage points from the Nutranext acquisition and net of Aplicare divestiture, which was compensated by 2 percentage points of negative impacts from foreign currency. Higher volumes owing to innovations also aided the top line.

Clorox witnessed significant pressure on gross margin, which contracted 150 basis points (bps) to 43.4% in the quarter under review. Lower margins can be attributed to elevated commodity, manufacturing and logistics expenses, which were partly mitigated with gains from cost savings and higher prices.

Segmental Discussion

Sales in the Cleaning segment improved 2% to $571 million, courtesy of strength in Home Care backed by various Clorox-branded products, including the Scentiva. This uptick was offset by roughly 1 percentage point from the divestiture of the Aplicare business in August 2017.

Household sales were flat at $442 million as top-line gains from Cat Litter and Fresh Step Clean Paws were compensated with lower consumption of Charcoal and decline in merchandising activity in Bags and Wraps.

Sales at the Lifestyle segment increased 26% to $309 million, mainly driven by the Nutranext buyout. Also, Dressings and Sauces, Water Filtration and Natural Personal Care divisions aided the segment’s growth.

At the International segment, sales fell 5% to $241 million as gains from higher prices and volumes were more than offset by unfavorable foreign currency impacts.

Financials

Clorox ended the quarter with cash and cash equivalents of $162 million, and long-term debt of $2,285 million. In first-quarter fiscal 2019, the company generated $259 million of net cash from continuing operations.

2019 Guidance

Clorox trimmed its earnings guidance for fiscal 2019 but reiterated the sales forecast. The company continues to project sales growth in the 2-4% range over fiscal 2018 level. The improvement will be backed by innovations that are likely to deliver a rise of nearly 3 percentage points, and combined positive effect from the Nutranext acquisition along with Aplicare divestiture of 2.5 percentage points. These will be somewhat offset by roughly 2 percentage points from currency headwinds.

Gross margin is now estimated to remain flat as gains from higher prices and cost-savings efforts are expected to be offset by increased costs and adverse foreign currency exchange rates. Earlier, management had predicted gross margin in the range of flat to up at a modest rate. Advertising and sales promotion spending is still anticipated to be roughly 10% of sales. Selling and administrative expenses are still projected to be nearly14% of sales.

For fiscal 2019, the company continues to envision effective tax rate of 23-24%.

Further, management intends to make fewer share repurchases in fiscal 2019 than nearly 50% of its $2-billion share repurchase authorization guided earlier. This was due to lesser-than-anticipated activity in the first quarter.

Consequently, management now anticipates fiscal 2019 earnings per share from continuing operations to be in the range of $6.20-$6.40, down from $6.32-$6.52 projected previously. In fiscal 2018, Clorox delivered earnings of $6.26. Management slashed its earnings forecast mainly due to the current expectations for share repurchases along with adverse impacts from foreign currency and higher costs. Notably, earnings projection includes nearly 8-12 cents from the Nutranext acquisition.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Clorox has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Clorox has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


The Clorox Company (CLX) - free report >>

Published in