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Clorox (CLX) Q3 Earnings Beat & Sales Miss, FY21 View Updated

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The Clorox Company (CLX - Free Report) reported mixed results for third-quarter fiscal 2021, wherein the top line missed the Zacks Consensus Estimate and the bottom line surpassed the same. Also, earnings declined year over year, while sales were flat in the reported quarter. Accordingly, management updated view for the fiscal year.

Nonetheless, management is encouraged by the company’s portfolio that helps it to efficiently cater to consumer demand and position it well for long-term growth. Its IGNITE strategy also appears encouraging.

Q3 Highlights

Adjusted earnings of $1.62 per share beat the Zacks Consensus Estimate of $1.47. However, the bottom line decreased 14% year over year on lower gross margins and increased advertising investments, somewhat offset by reduced selling and administrative costs.

The Clorox Company Price, Consensus and EPS Surprise

 

The Clorox Company Price, Consensus and EPS Surprise

The Clorox Company price-consensus-eps-surprise-chart | The Clorox Company Quote

The company posted net sales of $1,781 million, which lagged the Zacks Consensus Estimate of $1,872 million. However, the top line remained flat year over year with lower shipments mitigated by favorable price mix and a 1-point gain from the buyout of a majority share in the company's joint venture in Saudi Arabia. Organic sales dropped 1% in the quarter.

Gross margin contracted 320 basis points (bps) to 43.5% in the fiscal third quarter, marking the first decrease in 10 quarters. Escalated manufacturing and logistics costs as well as higher commodity costs, somewhat offset by lower trade promotion spending and gains from cost savings, led to the downside.

Segmental Discussion

Sales of the Health and Wellness segment dropped 8% to $680 million on sales decline in two of the three business units. Lower shipments of cleaning and disinfecting products at the retail and professional channels versus the unprecedented increase in the year-earlier period, and supply constraints for certain key products led to the downside.

The Household segment’s sales improved 6% to $510 million, driven by sales growth at all three business units. Particularly, the company witnessed strong double-digit growth in the Grilling business owing to increased consumer demand.

Sales at the Lifestyle segment were flat year over year at $293 million. Solid shipments and consumption in the Food business gaining from higher at-home meal occasions were offset by reduced shipments in Water Filtration, which lapped the initial stockpiling at the onset of the pandemic. The Natural Personal Care business witnessed the impact of mobility restrictions hurting in-store traffic.

In the International segment, sales increased 9% to $298 million from the year-ago quarter on favorable price mix. The segment’s sales also included gains of 7 points from the Saudi joint venture acquisition. Growth was partly mitigated by 2 points of negative currency impact. Organic sales for the segment rose 4%.

Financials

Clorox ended the quarter with cash and cash equivalents of $492 million and long-term debt of $2,483 million. In the fiscal third quarter, the company generated $264 million of net cash from operations. Further, capital expenditures for the reported quarter were $81 million.

At the end of the fiscal third quarter, the company had adjusted free cash flow of $661 million.

Fiscal 2021 Guidance

Clorox updated its outlook for fiscal 2021. It continues to envision sales growth of 10-13%, both on a reported and organic basis, for fiscal 2021. This suggests robust front-half sales and expectations of moderating demand for the rest of the fiscal year. Fiscal 2021 sales guidance assumes a 1-point currency headwind and a 1-point gain from its Saudi joint venture acquisition.

Meanwhile, gross margin is likely to decline on escalated commodity, and manufacturing and logistics costs. Further, selling and administrative expenses, as a percentage of sales, are now projected to lag 14% of sales due to lower incentive compensation costs stemming from the third-quarter non-cash impairment on the VMS business.

This Zacks Rank #4 (Sell) company still expects advertising and sales promotion expenses to be 11% of net sales, based on the assumption to spend 12% in the back half of fiscal 2021. The higher spending mainly relates to an increase in brand investments to support its innovation pipeline and customer engagement efforts. Effective tax rate is anticipated at 21-22%.

Consequently, adjusted earnings for fiscal 2021 are now estimated to be $7.45-$7.65 per share, suggesting year-over-year growth of 1-4%. Earlier, the company anticipated 9-12% growth in earnings per share to $8.05-$8.25. This revised view reflects assumptions of robust fiscal sales performance, somewhat offset by an increasingly higher cost environment.

Key Stocks to Consider

Chewy (CHWY - Free Report) has an expected long-term earnings growth rate of 20% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Natural Foods (UNFI - Free Report) has an average trailing four-quarter earnings surprise of 13.6%.
It carries a Zacks Rank #2.

Medifast (MED - Free Report) , also a Zacks Rank #2 stock, has an average trailing four-quarter earnings surprise of 17.4%.

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