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Clorox (CLX) Down 7.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Clorox (CLX - Free Report) . Shares have lost about 7.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Clorox due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Clorox Beats Q4 Earnings & Sales Estimates

Clorox has reported robust fourth-quarter fiscal 2020 results, wherein earnings and sales beat the Zacks Consensus Estimate and grew year over year. Robust demand for disinfecting and cleaning products due to the coronavirus outbreak, and broad-based growth at all segments primarily aided results.

Q4 Highlights

Quarterly earnings from continuing operations of $2.41 per share increased about 28% year over year and beat the Zacks Consensus Estimate of $2.00. The upside was mainly driven by higher net sales and gains from cost-savings, which aided margins. Nonetheless, increased selling and administrative costs, manufacturing and logistics costs, and advertising investments partly hurt the bottom line.

The company posted net sales of $1,983 million, up nearly 22% year over year and surpassing the Zacks Consensus Estimate of $1,858 million. This was backed double-digit volume growth across all segments, fueled by strong demand for its products due to the coronavirus outbreak and the stay-at-home trend. However, growth was partly offset by 2 points of adverse foreign currency impact. Organic sales increased 24% in the quarter.

Gross margin expanded 170 basis points (bps) to 46.8% in the fiscal fourth quarter. This marked the company’s seventh-straight quarter of gross margin expansion. The rise in gross margin was driven by gains from cost savings and double-digit volume growth, somewhat marred by higher expenses for manufacturing and logistics.

Segmental Discussion

Sales of the Health and Wellness segment rose 33% at $805 million on double-digit growth in two of the aforesaid three business units. Robust gains from the increased demand for disinfecting and cleaning products across the Cleaning and Professional Products units due to COVID-19 were the primary growth drivers.

The Household segment’s sales rose 17% to $612 million, driven by growth across all business units. Particularly, the company witnessed strong double-digit growth in Bags and Wraps, and Grilling businesses, owing to a much stronger consumer demand, aided by innovation.

Sales at the Lifestyle segment grew 16% to $298 million on double-digit sales growth in the Food and Water Filtration businesses, owing to strong consumer demand.

At the International segment, sales increased 12% to $268 million from the year-ago quarter on robust demand for cleaning and disinfecting products as well as other household items. Though sales were hurt by 12 points of negative currency impact, this was partly mitigated by strong pricing action implemented prior to the pandemic. Organic sales for the segment rose 24%.

Financials

Clorox ended fiscal 2020 with cash and cash equivalents of $871 million, and long-term debt of $2,780 million. In fiscal 2020, the company generated $1.5 billion of net cash from continuing operations.

Fiscal 2021 Guidance

Though there remains uncertainty about the future business trends, owing to the COVID-19 outbreak, Clorox provided its outlook for fiscal 2021 based on the current trends and some assumptions. These include persistent strong demand globally for cleaning and disinfecting products, aggressive investments in its global portfolio, discretionary pressures on consumers due to the ongoing recession, and minimal disruptions in its extended supply chain and other operations.

Backed by the factors, the company predicts flat to low-single-digit sales growth in fiscal 2021. This is likely to be driven by the persistence of elevated consumer demand through the first half of fiscal 2021, followed by a decelerating demand in the second half on the lapping of the initial spike in demand due to the COVID-19 outbreak in the second half of fiscal 2020. Organic sales for fiscal 2021 are expected to be flat to up in low-single digits.

Moreover, advertising and sales promotion spending is anticipated to increase to 11% of sales. Selling and administrative expenses are projected to be 14% of sales. The company envisions effective tax rate of 22-23% for fiscal 2021.

Management anticipates fiscal 2021 earnings per share between a mid-single-digit decline and a mid-single-digit rise. Moreover, earnings per share are expected to include 45-53 cents of contribution from its recently increased stake in the Kingdom of Saudi Arabia joint venture. This one-time non-cash gain due to fair value adjustments of the previously held stake is expected to be recorded in first-quarter fiscal 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 35.12% due to these changes.

VGM Scores

At this time, Clorox has a strong 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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


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