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Can Clorox's (CLX) Growth Efforts Track Earnings Beat in Q4?

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We expect consumer products company, The Clorox Co. (CLX - Free Report) to beat expectations when it reports fourth-quarter fiscal 2017 results on Aug 3. In the last quarter, the company delivered a positive earnings surprise of 0.8%.

However, the company has missed our estimates in two of the trailing four quarters, with an average negative surprise of 0.6%.

Clorox Company (The) Price and EPS Surprise


Clorox Company (The) Price and EPS Surprise | Clorox Company (The) Quote

What to Expect?

The question lingering in investors’ minds now is whether Clorox will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is $1.49 per share, reflecting a year-over-year growth of 18.3%. We note that the Zacks Consensus Estimate for the quarter has been stable ahead of the earnings release. Analysts polled by Zacks expect revenues of $1.64 billion, up 2.6% from the year-ago quarter.

However, we note that the stock has underperformed the industry in the last one month. The company’s shares have declined 0.7%, while the industry grew 2.9%.

Factors at Play

Clorox’s potential is visible in its robust outlook, progress on 2020 Strategy, diversified brand portfolio and disciplined capital strategy. The company’s solid brand portfolio places it well in the challenging environment. Further, it remains keen on the execution of 2020 Strategy, which is aimed at boosting growth and overall market share.

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 backed 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 on the back of lower selling and administrative costs. That said, management remains confident of delivering another year of top-line and bottom-line growth.

However, management expects trade promotional investments, along with inflationary pressure and foreign currency headwinds to lead to gross margin deceleration in fiscal 2017.

Nonetheless, we believe that Clorox’s growth drivers far outweigh the obstacles and will help the company sustain its impressive momentum.

What the Zacks Model Unveils?

Our proven model shows that Clorox is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. The Most Accurate estimate is $1.50 per share while the Zacks Consensus Estimate is pegged lower at $1.49. So the ensuing +0.67% ESP and the company’s Zacks Rank #3 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dollar General Corp. (DG - Free Report) currently has an Earnings ESP of +0.93% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avon Products Inc. (AVP - Free Report) currently has an Earnings ESP of +20.00% and a Zacks Rank #3.

Nordstrom Inc. (JWN - Free Report) has an Earnings ESP of +3.28% and a Zacks Rank #3.

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