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Earnings Preview: Clorox Company

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Global consumer goods retailer, Clorox Company (CLX - Analyst Report) is scheduled to release its second-quarter 2012 results on Friday, February 03, 2012.

The current Zacks Consensus earnings per share (EPS) estimate for the second quarter is 69 cents, representing an annualized growth of 1.16%. The Zacks Consensus Estimate for full-year 2012 stands at $4.07 per share, reflecting a year-over-year decline of 2.05% and falling within the company’s guidance range of $4.00 to $4.10 per share.

In the surprises context, Clorox has a history of delivering positive earnings surprises. We note that the company has outplayed the Zacks Consensus Estimate over the trailing four quarters exhibiting positive surprises with an average of 7.21%.

First-Quarter 2012 Recap

On November 02, 2011, Clorox posted better-than-expected first-quarter earnings of $1.01 per share, handily beating the Zacks Consensus Estimate of 92 cents per share. However, earnings in the quarter were down 7 cents from the year-ago quarter earnings, affected by macroeconomic headwinds and inflationary input cost situation.

Clorox’s net sales during the quarter inched up 3.0% year over year to $1,305.0 million from $1,266.0 million in the year-ago quarter, primarily driven by product innovation and increased pricing. Total revenue beats the Zacks Consensus Estimate of $1,294.0 million.

Agreement

Of the 14 analysts following the stock, one analyst revised the second quarter estimate downward in the last 7 days while 2 analysts trimmed estimates in the last 30 days. There were no upward revisions in both the periods. For fiscal 2012, 1 out of 15 analysts, slashed estimates in the past 7 days, with no upside to estimates in the same period. In the last 30 days, none of the analysts revised their fiscal 2012 estimates.

For fiscal 2013, 1 out of 14 analysts revised the estimate downward in the last 7 days while 2 analysts pulled down their estimates in the last 30 days. There were no upward movements in the last 7 or 30 days.

Magnitude

Despite one downward revision in the 7-day period and 2 estimate cuts in the 30-day period, the estimate for the second quarter remained stable at 69 cents per share. With one analyst trimming estimate in the 7-day period, the Zacks Consensus Estimate for fiscal 2012 moved down by a penny to $4.07 per share. However, for the 30-day period, none of the analysts revisited their estimates, thereby keeping the Zacks Consensus Estimate unchanged.

Despite one downward revision in the 7-day period, the Zacks Consensus Estimate for fiscal 2013 remained stable at $4.42 per share. However, estimate cuts by 2 analysts in the 30-day period pulled down the Zacks Consensus Estimate by a penny.

Our Take

The Oakland, California-based company possesses a strong portfolio of brands, including Clorox, Glad, Brita, Armor All, Burt’s Bees, STP and Kingsford, offering a competitive edge while bolstering its well-established position in the market. Further, Clorox is constantly looking for acquisitions and alliances opportunities to boost its market share and product portfolio.

Looking ahead, Clorox targets to earn $4.00 to $4.10 per share of annual earnings based on 1% to 3% growth in sales. In an effort to enhance its market share and product portfolio, Clorox is constantly looking for acquisitions and alliances opportunities. Moreover, Clorox is carefully managing its asset value and focusing on realizing double-digit economic profit growth and free cash flow of 10% of net sales in fiscal 2012.

However, intense competition from other established players and a highly leveraged balance sheet may undermine the company’s future growth prospects. Further, the company’s highly leveraged balance sheet with long-term debt of $2,125.0 million and debt-to-capitalization ratio of 104% at the end of fiscal 2011, affect its financial flexibility. This may, in turn, curtail the company’s ability to pursue acquisitions or expand operations organically.

Clorox Company, which competes with the likes of Colgate-Palmolive Company (CL - Analyst Report) and Procter and Gamble Company (PG - Analyst Report), currently has a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock. We have a long-term ‘Neutral’ recommendation on the stock.

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