It has been about a month since the last earnings report for Clorox (
CLX Quick Quote CLX - Free Report) . Shares have lost about 9.9% 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 catalysts.
Clorox Beats Q3 Earnings & Sales Estimates, Ups View
Clorox reported third-quarter fiscal 2023 results, wherein the top and bottom lines beat the Zacks Consensus Estimate and our estimate. Sales and earnings rose year over year. Despite cost inflation, results benefited from a solid innovation pipeline, digital transformation, pricing and cost-saving efforts.
CLX has been on track with its streamlined operating model, which aims to improve efficiency. The company also launched products through third-party partnerships in Burt's Bees and Glad. Q3 Details
Adjusted earnings of $1.51 per share improved 15% year over year and beat the Zacks Consensus Estimate and our estimate of $1.20. Earnings benefited from pricing gains and cost savings, negated by increased advertising investments, higher selling and administrative expenses, and a rise in commodity costs.
Net sales of $1,915 million rose 6% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $1,826 million and our estimate of $1,804.5 million. On an organic basis, sales improved 8%. The increase in sales was attributed to a favorable price mix, partly offset by lower volume. The company witnessed organic sales growth in all four segments, driven by improved service levels. The gross margin expanded 590 bps year over year to 41.8% in the fiscal third quarter. Gains from pricing and cost-saving initiatives were offset by elevated manufacturing and logistic costs and higher commodity costs. It also marked the second consecutive quarter of a gross margin expansion on the back of cost pricing and high cost savings. Segmental Discussion
Sales of the
Health and Wellness segment grew 7% to $707 million. The downside was led by a 23-point gain from a favorable price mix, offset by a 16-point decline in volume. The Household segment’s sales improved 2% to $550 million. The increase in sales for the segment can be attributed to 14 points of pricing gains offset by 12 points of volume decline. Sales in the Lifestyle segment rose 15% year over year to $353 million, driven by a favorable price mix. In the International segment, sales of $305 million were up 1% year over year, driven by a 21-point gain from a favorable price mix, offset by a volume decline of 7 points and a 13-point impact from unfavorable currency. Organic sales for the segment improved 14%. Financials
Clorox ended third-quarter fiscal 2023 with cash and cash equivalents of $242 million, and long-term debt of $2,476 million. As of Mar 31, 2023, the company generated $728 million of net cash from operations.
Fiscal 2023 Guidance
For fiscal 2023, the company envisions year-over-year net sales growth of 1-2% compared with the prior mentioned down 2% and up 1%. Organic sales are anticipated to increase 3-4% versus flat to up 3% mentioned earlier. Currency headwinds are likely to impact sales by 2% in fiscal 2023.
The gross margin is expected to increase 250-300 bps in fiscal 2023 compared with the prior mentioned 200 bps, driven by the combined benefits of pricing actions, cost savings and supply-chain-optimization efforts, offset by continued cost inflation. The company expects selling and administrative expenses to be 16% of sales compared with the earlier stated 15-16%, including 1.5 points of impact from its strategic investments in digital capabilities and productivity enhancements. Clorox anticipates advertising and sales promotion spending to be 10% of sales, driven by its commitment to investing in its brand portfolio. The effective tax rate is likely to be 37% compared with the prior mentioned 24%. Also, the adjusted tax rate is likely to be 24% in fiscal 2023. The company expects adjusted earnings of $4.35-$4.50 per share for fiscal 2023 compared with the $4.05-$4.30 stated earlier. The guidance suggests a year-over-year increase of 6-10%. On a GAAP basis, earnings per share are anticipated to be 45-60 cents, suggesting a decline of 88-84% from the year-ago period’s reported number. Earlier, the company anticipated GAAP earnings of $3.20-$3.45, indicating a decline of 14-8%. For the streamlined operating model program, it expects $75-$100 million in ongoing annual savings and $75-$100 million in one-time costs over fiscal 2023 and 2024. For fiscal 2023, savings from this plan are likely to be $35 million year over year compared with the previously stated $25 million. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, Clorox has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Clorox has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.