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Clorox (CLX) Up 3.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Clorox (CLX - Free Report) . Shares have added about 3.1% 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 its most recent earnings report in order to get a better handle on the important drivers.

Clorox Q4 Earnings & Sales Miss Estimates, Gives FY22 View

Clorox has reported soft results for fourth-quarter fiscal 2021, wherein the top and bottom lines missed the Zacks Consensus Estimate and declined year over year. Results were impacted by soft sales performance across three of the four segments. Reduced shipments from the prior-year’s peak along with an unfavorable price mix mainly hurt sales. This along with higher manufacturing and logistics costs, and increased commodity costs dented the bottom line and margins.

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

Q4 Highlights

Adjusted earnings of 95 cents per share decreased 61% year over year and missed the Zacks Consensus Estimate of $1.29. The soft earnings performance can be attributed to lower sales, increased manufacturing and logistics costs, and higher commodity costs. This was somewhat offset by gains from cost-saving initiatives.

The company posted net sales of $1,802 million, which lagged the Zacks Consensus Estimate of $1,917 million. The top line also reflected a decline of 9% from the year-ago quarter, whereas organic sales dropped 10%. Sales were mainly impacted by the decline of shipments from the peak levels amid the pandemic in the year-ago quarter, including a greater-than-anticipated decline in the Health and Wellness segment.

Sales were also hurt by unfavorable price mix, owing to supply improvements, which led to broader product assortment, with the reintroduction of value packs. This was partly offset by a 1-point benefit from the acquisition of the majority stake in its joint venture in the Kingdom of Saudi Arabia in July 2020. However, the company noted that sales increased 13% on a two-year stack basis.

Gross margin contracted 970 basis points (bps) to 37.1% in the fiscal fourth quarter. Elevated manufacturing and logistics costs, higher commodity costs due to significant cost inflation, sales declines (resulting from lower manufacturing fixed-cost absorption) and unfavorable price mix hurt gross margin. This was somewhat offset by gains from cost savings.

Segmental Discussion

Sales of the Health and Wellness segment dropped 17% to $670 million on sales declines 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 due to the decline in consumer demand led to the downside. Sales were also impacted by adverse product mix, owing to the normalization of supply.

The Household segment’s sales improved 8% to $560 million, driven by sales declines in two of the three business units — Bags & Wraps, and Grilling. Unfavorable price mix and lower shipments due to moderating consumer demand were the primary reasons.

Sales at the Lifestyle segment dipped 3% year over year to $290 million. Declines in two of the three businesses due to unfavorable price mix and lower shipments in Water Filtration and Food, owing to moderating consumer demand, hurt the segment’s sales.

In the International segment, sales increased 5% to $282 million from the year-ago quarter on increased shipments due to the acquisition of a majority stake in its Saudi joint venture. Organic sales for the segment dropped 1%.

Financials

Clorox ended fiscal 2021 with cash and cash equivalents of $319 million, and long-term debt of $2,484 million. In fiscal 2021, the company generated $1.3 billion of net cash from operations. Capital expenditure incurred in fiscal 2021 summed to $331 million. In fiscal 2021, the company generated an adjusted free cash flow of $945 million.

Fiscal 2022 Guidance

Clorox issued its fiscal 2022 outlook. It envisions a sales decline of 2-6%, both on a reported and organic basis, for fiscal 2022. The guidance assumes lower sales in the first half of fiscal 2022, ranging from high-single digits to low-double digits. It reported 27% sales growth in the first half of fiscal 2021. For the second half of fiscal 2022, the company anticipates sales to normalize toward the lower end of its long-term sales growth target of 3-5%. It notes that consumer demand will be the largest factor to drive sales trends in fiscal 2022, which is anticipated to remain uncertain.

Gross margin is expected to decline 300-400 bps in fiscal 2022 on escalated commodity costs, and manufacturing and logistics expenses, particularly transportation. The company expects the headwinds to be more pronounced in the first quarter of fiscal 2022 when it will lap a record gross margin with higher manufacturing fixed-cost absorption. It expects a gradual sequential improvement in the gross margin, following the fiscal first quarter, with expectations of returning to gross margin expansion in fourth-quarter fiscal 2022. It expects the improvement in gross margin to result from the moderation of cost inflation as the year proceeds as well as its mitigation actions bearing fruit.

Selling and administrative expenses, as a percentage of sales, are projected to be 15% of sales. The company anticipates about 1% of this to be for planned investments in digital capabilities and productivity enhancements. It expects advertising and sales promotion expenses to be 10% of net sales. 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 22-23%.

Consequently, adjusted earnings for fiscal 2022 are estimated to be $5.40-$5.70 per share, suggesting a year-over-year decline of 26-21%. On a GAAP basis, earnings per share are anticipated to be $5.05-$5.35, suggesting a 9-4% decline from the year-ago period. The company notes that adjusted earnings per share will exclude long-term investments in digital capabilities and productivity enhancements to provide greater visibility to the underlying operating performance, starting first-quarter fiscal 2022.

Additionally, it announced plans to invest about $500 million in the next five years, beginning fiscal 2022. Of this, the company plans to invest about $90 million in fiscal 2022 for digital capabilities and productivity enhancements. As a part of the investment, it will replace the enterprise source planning system, which will help generate efficiencies and position it better in supply chains, digital commerce, innovation and brand building for the long term. It expects about $55 million (or 35 cents) of the $90 million invested in fiscal 2022 to flow through the profit and loss statement mostly as selling and administrative expenses.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -41.72% due to these changes.

VGM Scores

Currently, Clorox has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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. It's no surprise Clorox has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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