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Here's Why Clorox (CLX) is Marching Ahead of Its Industry
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The Clorox Company (CLX - Free Report) has been benefiting from solid demand for its products and brands, owing to continued brand relevance. Cost-saving efforts, strong execution and pricing actions bode well. This led to impressive second-quarter fiscal 2023 performance.
Adjusted earnings of 98 cents per share improved 48% year over year. Earnings benefited from pricing gains and cost savings, negated by lower volume, higher selling and administrative expenses, and increased commodity costs. Net sales of $1,715 million rose 1% from the year-ago quarter. On an organic basis, sales improved 4%. The uptick was attributed to a favorable price mix, partly offset by lower volume.
The company has been witnessing continued momentum in the core International business as it continues to build on the success of the segment's Go Lean strategy. These efforts will help in accelerating profitable growth for the segment. Driven by its IGNITE strategy, which aims to improve profitability in International business, the company expects to invest selectively in profitable platforms.
Management continues to explore international opportunities, including the acquisition of a majority stake in its joint venture in the Kingdom of Saudi Arabia. The company believes that this acquisition is poised to boost long-term growth in the international segment. In second-quarter fiscal 2023, organic sales for the International segment improved 9%.
It also remains on track with the IGNITE strategy, which focuses on the expansion of the key elements under the 2020 Strategy to pace up innovation in each area of business. The IGNITE strategy encompasses the long-term financial targets of achieving net sales growth of 3-5%, EBIT margin expansion of 25-50 bps and free cash flow generation of 11-13% of sales.
Management announced a streamlined operating model to create a faster, simpler company through the Reimagine Work under its IGNITE strategy. The operating model implemented in the first quarter of fiscal 2023, will help increase efficiencies and transform the company's operations in the areas of the supply chain, digital commerce, innovation, brand building and more over long term. The implementation of this new model is likely to be completed in fiscal 2024.
The company expected the operating model to generate ongoing annual savings of $75-$100 million, with benefits likely to occur starting fiscal 2023. Of this, the company expected $40-60 million or 30 cents per share, to be recognized in fiscal 2023 under other income and expenses.
As part of efforts to enhance digital capabilities, CLX’s previously announced plans to invest $500 million in the next five years in transformative technologies and processes, bode well. The investments include the replacement of the company's enterprise resource planning system, its transition to a cloud-based platform and the implementation of a suite of other digital technologies.
Driven by these upsides, the company envisions fiscal 2023 net sales to be between down 2% and up 1% year over year compared with the prior-mentioned range of down 4% to up 2% and our estimate of down 0.2%. Organic sales are anticipated to be flat to up 3% compared with the range of down 3% to up 3% mentioned earlier and our estimate of 1.6% growth.
The company expects adjusted earnings of $4.05-$4.30 per share for fiscal 2023 compared with the earlier guided range of $3.85-$4.22 and our estimate of $4.16. The company’s earnings view excludes long-term investments in digital capabilities and productivity enhancements of 55 cents to provide greater visibility of the underlying operating performance.
On a GAAP basis, earnings per share are anticipated to be between $3.20 and $3.45 compared with its prior view of $3.10-$3.47. The view is in sync with our estimate of $3.16. Also, the gross margin is expected to increase 200 bps, driven by the combined benefits of pricing actions, cost savings and supply-chain-optimization efforts, offset by continued cost inflation.
Image Source: Zacks Investment Research
In the past three months, shares of this Zacks Rank #2 (Buy) company have gained 1.7% against the industry’s 7.9% decline.
Hurdles to Overcome
However, not all is good in the hood for Clorox. It has been reeling under adverse impacts inflation, higher manufacturing, logistics and commodity costs. In second-quarter fiscal 2023, selling and administrative expenses rose 17% year over year to $282 million. The metric, as a percentage of sales, expanded 210 bps from the prior fiscal year’s figure at 16.4%, attributable to investments to enhance digital capabilities.
Going into fiscal 2023, management estimates selling and administrative expenses to be 15-16% of sales, including 1.5 points of impact from its strategic investments in digital capabilities and productivity enhancements. The company anticipates advertising and sales promotion spending to be 10% of sales, induced by its commitment to invest in its brand portfolio.
For fiscal 2023, management expects cost inflation to be $400 million, including commodities, transportation and wage inflation. It also anticipates broad-based inflation across the entire supply chain. Also, the company is likely to record a charge of $75-$100 million related to the new operating model over fiscal 2023 and 2024.
Summing Up
Although cost inflation remains a near term headwind, Clorox remains well placed on the back of solid demand, cost-saving efforts, pricing actions, its IGNITE strategy and digital investments.
In fact, the stock’s Growth Score of A and long-term earnings growth rate of 11.7% also pose a favorable view. Also, the earnings estimate for the current financial year have increased by a penny to $4.23 over the past 30 days.
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank of 1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 9.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current-year EPS suggests an increase of 70.8% from the year-ago reported number.
Mondelez International, which manufactures, markets, and sells snack food and beverage products, carries a Zacks Rank 2. MDLZ has a trailing four-quarter earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for Mondelez’s current financial year sales and earnings suggest growth of 9% and 7.5%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, which is a frozen potato product company, currently has a Zacks Rank of 2. LW has a trailing four-quarter earnings surprise of 52.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current-year sales and EPS suggest growth of 19.5% and 89.9%, respectively, from the year-ago reported numbers.
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Here's Why Clorox (CLX) is Marching Ahead of Its Industry
The Clorox Company (CLX - Free Report) has been benefiting from solid demand for its products and brands, owing to continued brand relevance. Cost-saving efforts, strong execution and pricing actions bode well. This led to impressive second-quarter fiscal 2023 performance.
Adjusted earnings of 98 cents per share improved 48% year over year. Earnings benefited from pricing gains and cost savings, negated by lower volume, higher selling and administrative expenses, and increased commodity costs. Net sales of $1,715 million rose 1% from the year-ago quarter. On an organic basis, sales improved 4%. The uptick was attributed to a favorable price mix, partly offset by lower volume.
The company has been witnessing continued momentum in the core International business as it continues to build on the success of the segment's Go Lean strategy. These efforts will help in accelerating profitable growth for the segment. Driven by its IGNITE strategy, which aims to improve profitability in International business, the company expects to invest selectively in profitable platforms.
Management continues to explore international opportunities, including the acquisition of a majority stake in its joint venture in the Kingdom of Saudi Arabia. The company believes that this acquisition is poised to boost long-term growth in the international segment. In second-quarter fiscal 2023, organic sales for the International segment improved 9%.
It also remains on track with the IGNITE strategy, which focuses on the expansion of the key elements under the 2020 Strategy to pace up innovation in each area of business. The IGNITE strategy encompasses the long-term financial targets of achieving net sales growth of 3-5%, EBIT margin expansion of 25-50 bps and free cash flow generation of 11-13% of sales.
Management announced a streamlined operating model to create a faster, simpler company through the Reimagine Work under its IGNITE strategy. The operating model implemented in the first quarter of fiscal 2023, will help increase efficiencies and transform the company's operations in the areas of the supply chain, digital commerce, innovation, brand building and more over long term. The implementation of this new model is likely to be completed in fiscal 2024.
The company expected the operating model to generate ongoing annual savings of $75-$100 million, with benefits likely to occur starting fiscal 2023. Of this, the company expected $40-60 million or 30 cents per share, to be recognized in fiscal 2023 under other income and expenses.
As part of efforts to enhance digital capabilities, CLX’s previously announced plans to invest $500 million in the next five years in transformative technologies and processes, bode well. The investments include the replacement of the company's enterprise resource planning system, its transition to a cloud-based platform and the implementation of a suite of other digital technologies.
Driven by these upsides, the company envisions fiscal 2023 net sales to be between down 2% and up 1% year over year compared with the prior-mentioned range of down 4% to up 2% and our estimate of down 0.2%. Organic sales are anticipated to be flat to up 3% compared with the range of down 3% to up 3% mentioned earlier and our estimate of 1.6% growth.
The company expects adjusted earnings of $4.05-$4.30 per share for fiscal 2023 compared with the earlier guided range of $3.85-$4.22 and our estimate of $4.16. The company’s earnings view excludes long-term investments in digital capabilities and productivity enhancements of 55 cents to provide greater visibility of the underlying operating performance.
On a GAAP basis, earnings per share are anticipated to be between $3.20 and $3.45 compared with its prior view of $3.10-$3.47. The view is in sync with our estimate of $3.16. Also, the gross margin is expected to increase 200 bps, driven by the combined benefits of pricing actions, cost savings and supply-chain-optimization efforts, offset by continued cost inflation.
Image Source: Zacks Investment Research
In the past three months, shares of this Zacks Rank #2 (Buy) company have gained 1.7% against the industry’s 7.9% decline.
Hurdles to Overcome
However, not all is good in the hood for Clorox. It has been reeling under adverse impacts inflation, higher manufacturing, logistics and commodity costs. In second-quarter fiscal 2023, selling and administrative expenses rose 17% year over year to $282 million. The metric, as a percentage of sales, expanded 210 bps from the prior fiscal year’s figure at 16.4%, attributable to investments to enhance digital capabilities.
Going into fiscal 2023, management estimates selling and administrative expenses to be 15-16% of sales, including 1.5 points of impact from its strategic investments in digital capabilities and productivity enhancements. The company anticipates advertising and sales promotion spending to be 10% of sales, induced by its commitment to invest in its brand portfolio.
For fiscal 2023, management expects cost inflation to be $400 million, including commodities, transportation and wage inflation. It also anticipates broad-based inflation across the entire supply chain. Also, the company is likely to record a charge of $75-$100 million related to the new operating model over fiscal 2023 and 2024.
Summing Up
Although cost inflation remains a near term headwind, Clorox remains well placed on the back of solid demand, cost-saving efforts, pricing actions, its IGNITE strategy and digital investments.
In fact, the stock’s Growth Score of A and long-term earnings growth rate of 11.7% also pose a favorable view. Also, the earnings estimate for the current financial year have increased by a penny to $4.23 over the past 30 days.
Other Consumer Staple Stocks Worth a Look
Some other top-ranked consumer staple stocks are Post Holdings (POST - Free Report) , Mondelez International (MDLZ - Free Report) and Lamb Weston (LW - Free Report) .
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank of 1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 9.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Post Holdings’ current-year EPS suggests an increase of 70.8% from the year-ago reported number.
Mondelez International, which manufactures, markets, and sells snack food and beverage products, carries a Zacks Rank 2. MDLZ has a trailing four-quarter earnings surprise of 7.5%, on average.
The Zacks Consensus Estimate for Mondelez’s current financial year sales and earnings suggest growth of 9% and 7.5%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, which is a frozen potato product company, currently has a Zacks Rank of 2. LW has a trailing four-quarter earnings surprise of 52.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current-year sales and EPS suggest growth of 19.5% and 89.9%, respectively, from the year-ago reported numbers.