Holding on to stocks with solid growth potential is prudent for investors looking for solid returns. One such stock is the consumer products seller, Clorox Inc. (CLX - Free Report) , which is doing well on the back of its solid surprise trend, robust outlook, impressive stock performance, progress on 2020 Strategy, diversified brand portfolio and disciplined capital strategy. The stock also has a long-term earnings growth rate of 6.8%. So, let’s get a better understanding of how these traits are working for the company.
Robust Earnings History & Outlook
Clorox earnings history reveals that the company has delivered positive earnings surprise in six of the last eight quarters, with third-quarter fiscal 2017 marking its second consecutive beat. While top-line results for the last reported quarter were marginally short of estimates, it marked the company’s first miss following four consecutive beats. The recent quarter results gained from strong sales, lower tax rate and gain from sale of an international facility that forms part of its Go Lean strategy. Further, sales were aided by improved volumes, contributions from RenewLife and better International pricing.
While Clorox expects the macroeconomic headwinds to persist going forward, it is all set to counter the hurdles with prudent strategies. The company plans to offset stiff competition with increased brand investments. Further, it is on track with the Go Lean strategy to fight slowing global economies. Moreover, the company aims to keep cost-savings and pricing in place, to battle the expected inflation and increasing commodity pricing.
Further, the company anticipates boosting sales and volumes in fourth-quarter fiscal 2017 driven by the intense advertising and promotion investments to enhance brand value that were incurred in the fiscal third quarter. It also envisions EBIT margin to improve in the fourth quarter backed by lower selling and administrative costs. That said, management remains confident of delivering another year of top and bottom-line growth.
This Oakland, CA-based retailer has outperformed both the broader industry and sector in the past one month. Evidently, shares of Clorox advanced 5.9% in the past one month, compared with the Zacks categorized Soap and Cleaning Materials industry’s growth of 2.9% and the Zacks categorized Consumer Staples sector’s 0.5% upside. This is mainly attributable to its robust show even amid a tough retail landscape. This, in itself, speaks volumes about the company’s ongoing prospects.
Clorox remains on track with the smooth execution of 2020 Strategy, which is aimed at augmenting growth for the improvement of categories and overall market share. The whole strategy is aimed at achieving certain long-term aspirations, including growing net sales by 3−5%, increasing EBIT margin by 25−50 basis points (bps) and generating free cash flow of 10−12% of sales, all on a yearly basis. Clorox anticipates achieving these targets through key accelerators like investment in brands, development of eCommerce, technological advancements; enhancement of growth culture and focus on the 3Ds – desire, decision and delight.
Diversified Brand Portfolio & Capital Strategy
Clorox's diversified brand portfolio positions the company well above peers to generate above-average industry growth and sustain itself in the currently challenging environment. The company’s focus on boosting sales through brands is well-evident from constant innovations and marketing strategies to drive top-line growth. Incidentally, in the first quarter, the company raised trade promotion spending at a double-digit rate, to sponsor innovations and counter competition in some core categories. These resulted in sales and volume growth of 3.6% and 7%, respectively, in the fiscal third quarter, amid a challenging consumer environment.
The company has always maintained a disciplined capital allocation strategy, focused on making investments to develop business while using the excess cash to lower debts and enhance shareholder returns through dividend payouts and share buybacks. Moreover, its cash generation ability is also reflected in its tradition of returning excess cash to shareholders in the form of share buybacks and dividend payouts.
While all is well with this mega consumer products company, its margins are likely to remain a concern due to the increased trade promotional investments which are aimed at supporting product innovation. However, we believe that Clorox’s growth drivers far outweigh the obstacles and will help the company sustain its impressive momentum.
However, investors interested in the space can count on Unilever Plc (UL - Free Report) , Church & Dwight Company Inc. (CHD - Free Report) and Reckitt Benckiser Group PLC (RBGLY - Free Report) .
Unilever, with long-term EPS growth rate of 12%, has increased 9.4% in the last three months.
Church & Dwight has to its credit a spectacular earnings history as the company delivered an average positive earnings surprise of 6.3% in the past four quarters. Moreover, it has a long-term EPS growth rate of 9.2%.
Reckitt Benckiser, with long-term EPS growth rate of 15.5%, has grown 9.7% in the last three months.
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