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Can Clorox (CLX) Keep the Earnings Beat Streak Alive in Q3?

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The Clorox Company (CLX - Free Report) is slated to report third-quarter fiscal 2019 results on May 1.

A glimpse of the company’s earnings performance shows that it delivered a positive surprise in each of the last nine quarters. Moreover, it came up with an average trailing four-quarter beat of 4.6%.

The Zacks Consensus Estimate for earnings in the fiscal third quarter is pegged at $1.47, indicating growth of 7.3% from the prior-year quarter figure. Earnings estimates remained unchanged over the past 30 days.

The Clorox Company Price and EPS Surprise

The Clorox Company Price and EPS Surprise | The Clorox Company Quote

Let’s See How Things Are Shaping Prior to 3Q19

Clorox has been gaining from solid growth initiatives including 2020 Strategy, Go Lean Strategy, enhancement of e-commerce business and disciplined capital allocation. Currently, the company’s 2020 Strategy, aimed at improving product categories and enhancing overall market share, is well on track. Its Go Lean Strategy is likely to boost margins through operational efficiencies. Moreover, the company remains committed toward investing in product and brand differentiation in order to safeguard value proposition.

Additionally, Clorox’s focus on solid investments in demand building through digital marketing, e-commerce and product innovation pipeline is encouraging. As retail customers and capabilities are increasing across both physical world and online platforms, the company remains keen on making strategic partnerships. As a result, Clorox witnessed an improvement in digital capabilities leading to robust e-commerce growth, which is now a significant revenue contributor.

Backed by all these aforementioned initiatives, the company is likely to deliver robust top- and bottom-line growth in the to-be-reported quarter. Notably, the consensus mark for quarterly revenues stands at $1.57 billion, implying a 3.2% rise from the year-ago quarter number.

However, Clorox continues to witness higher commodity costs, and manufacturing and logistics expenses. While the company continues to estimate gross margin expansion in the second half of fiscal 2019, it now expects a muted growth due to the shift in supply-chain spending to the back half. This, in turn, might weigh on the company’s margins and hurt profitability in the fiscal third quarter.

Meanwhile, foreign currency translations have also been hurting the company’s performance. In fiscal 2019, currency is expected to dent sales by roughly 3 percentage points. Also, earnings projection for the fiscal year is hurt by adverse impacts from currency. This remains a headwind for Clorox in the quarter to be reported.

What the Zacks Model Predicts

Our proven model does not conclusively show that Clorox is likely to beat earnings estimates in third-quarter fiscal 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Clorox currently carries a Zacks Rank #3. However, the company’s Earnings ESP of -2.53% lowers the chances of earnings beat in the upcoming release.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Estee Lauder Companies Inc. (EL - Free Report) has an Earnings ESP of +1.16% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Church & Dwight Co., Inc. (CHD - Free Report) has an Earnings ESP of +0.30% and a Zacks Rank #2.

Keurig Dr Pepper Inc. (KDP - Free Report) has an Earnings ESP of +1.08% and a Zacks Rank #3.

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