The Clorox Company (CLX Quick QuoteCLX - Free Report) reported mixed second-quarter fiscal 2026 results, wherein the bottom line fell short of the Zacks Consensus Estimate and the top line beat the same. Both metrics also decreased on a year-over-year basis. Also, organic sales fell year over year.

The company is going through a transformation and maneuvering a dynamic landscape. The volatile macroeconomic backdrop and the temporary impacts of its ERP implementation have been deterrents and have added to complexity. CLX’s shares have fallen 3.1% in after-hours trading yesterday following soft quarterly results. Shares of this current Zacks Rank #3 (Hold) company have lost 8.3% in the past six months compared with the industry’s 2.2% decline.

Taking a Sneak Peek at CLX’s Quarterly Performance

The company posted adjusted earnings of $1.39 per share, which missed the Zacks Consensus Estimate of $1.43. This represents a 10% decrease from $1.55 per share in the same quarter last year on soft gross profit and lapping tax rate benefits in the prior period.

Net sales of $1.67 billion dipped 1% from the year-ago quarter, mainly due to lower consumption and partially offset by shipments ahead of consumption for several businesses. Organic sales also dropped 1% in the reported quarter. However, the metric beat the consensus mark of $1.63 billion.

The Clorox Company Price, Consensus and EPS Surprise

The Clorox Company price-consensus-eps-surprise-chart | The Clorox Company Quote

Gross profit slipped 2.2% year over year to $722 million. We note that the gross margin contracted 60 basis points (bps) year over year to 43.2%, thanks to elevated manufacturing and logistics costs, partly offset by cost savings.

Discussion on Segments

Sales of the Health and Wellness segment grew 2% year over year to $643 million, reflecting a two-point increase in volumes, mainly owing to incremental shipments related to the final phase of the ERP transition and robust shipments in Professional Products. Our model predicted segment sales of $615.4 million. The segment adjusted EBIT dipped 2% on elevated manufacturing and logistics costs, partly offset by increased sales.

The Household segment reported a 6% year-over-year decrease in net sales to $419 million, due to three points of lower volume and three points of negative price mix. Our model predicted sales of $432.6 million for the segment. Segment adjusted EBIT slipped 54%, mainly due to weak sales, and elevated manufacturing and logistics costs, somewhat offset by cost savings.

Sales in the Lifestyle segment tumbled 5% year over year to $321 million, reflecting five points of lower volumes from reduced consumption. We expected net sales of $324.5 million for the segment. Segment adjusted EBIT rose 3%, primarily due to reduced advertising investments, offset by lower sales.

The International segment saw a 7% rise in net sales of $294 million due to price mix, favorable foreign exchange rates and increased volumes. Organic sales also grew 5%. We expected net sales of $268.5 million for the segment. Segment adjusted EBIT surged 48%, mainly due to higher net sales and cost savings.

Clorox's Financial Update

Clorox ended the quarter with cash and cash equivalents of $227 million, long-term debt of $2.49 billion and stockholders’ deficit equity of $125 million, excluding the non-controlling interest of $160 million.

Guidance for FY26

Management is maintaining the outlook for net sales, gross margin and adjusted EPS for fiscal 2026. The impact of the order fulfillment woes experienced earlier in the year, resulting consumption and market share losses, keeps the present expectations in the lower end of the guided range. This outlook excludes the impact of CLX’s acquisition of GOJO Industries, which is likely to close before the end of fiscal 2026.??????

The most significant driver of the fiscal 2026 outlook is a transitory one. Clorox shipped nearly two weeks of inventory ahead of consumption at the???fourth-quarter fiscal 2025 end as retailers built???inventory in advance of the ERP transition. Management had expected???retailers to draw down on these inventories in the first quarter of the current fiscal year, resulting in lower shipments year over year. From a sales growth perspective, the reduction in sales from this inventory drawdown comes to roughly 7.5 points of decline in fiscal 2026 as compared with the higher base of the last fiscal year. Inventory drawdown is likely to reduce fiscal 2026 earnings per share by approximately 90 cents. Compared with the higher base in fiscal 2025, this results in a year-over-year decline of about 30% to fiscal 2026 earnings per share and almost 23% to fiscal 2026 adjusted earnings per share.

Net sales are still expected to decline 6-10% compared with the prior year. This projection includes less than one point of negative impact from the divestiture of the VMS business. Organic sales are anticipated to decrease 5-9%, largely caused by a 7.5 point decline due to the reversal of incremental shipments made in the previous year as part of the ERP transition.

The gross margin is projected to decline 50-100 basis points. A significant portion of this decline, approximately 100 basis points, is attributed to the reversal of the prior year’s ERP-related shipment impact.

Selling and administrative expenses are expected to account for roughly 16% of net sales. This includes an estimated 90 basis point impact from the company’s ongoing strategic investments in digital capabilities and productivity improvements. Spending on advertising and sales promotion is projected to be approximately 11% of net sales, underscoring the company’s continued commitment to supporting its brands.

Earnings per share (EPS) are anticipated to be between $5.60 and $5.95, representing a year-over-year decrease of 14-9%. This guidance includes a negative impact of approximately 90 cents per share, stemming from the reversal of incremental shipments associated with the ERP transition in the prior year.

Adjusted EPS is still envisioned to be between $5.95 and $6.30, indicating a decline of 23-18% from the previous year. This figure excludes the estimated 35 cents per share impact from long-term investments in digital capabilities and productivity enhancements, while accounting for the 90 cents per share negative impact related to the ERP-related shipment reversal.

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