The Clorox Company (CLX - Free Report) is climbing charts, courtesy of its robust earnings trend in recent quarters. Additionally, the company’s upside story relates to the smooth progress on its 2020 Strategy as well as efforts to boost e-commerce sales. The positive effects of these elements are clearly visible in its solid stock movement.
Though shares of Clorox dropped 3.5% in the past month, it fared better than the industry’s decline of 5.1%. However, the stock witnessed growth of 3% after reporting solid results on May 2 while the industry dropped 0.2%.
Clorox delivered earnings and sales beat in third-quarter fiscal 2018, marking its sixth straight earnings beat. Additionally, the company’s sales beat expectations in three of the last four quarters. Bottom lines primarily gained from solid sales and lower effective tax rate. Sales gains were driven by improvement across all segments, backed by higher volumes and prices.
Let’s find out more about the growth drivers for this Zacks Rank #3 (Hold) stock.
Robust Sales View
Following the strong third quarter, Clorox perked up its sales guidance for fiscal 2018, driven by incremental sales from innovation-led products and acquisition of Nutranext as well as improved pricing and revised tax rate. The company now projects sales growth of nearly 3%, which is at the high-end of its previous guidance of 1-3%. The guidance includes the contribution of 1 point from the Nutranext acquisition and an estimated 3-point gain from product innovation.
2020 Strategy Bodes Well
Clorox is progressing with the smooth execution of its 2020 Strategy, which is aimed at boosting 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 is well on track with its 2020 Strategy, which is meant to be achieved through key accelerators like investment in brands; development of e-commerce; technological advancements; enhancement of growth culture and focus on the 3Ds -- desire, decision and delight.
Boosting E-commerce Sales
In response to the changing retail environment, Clorox is making strategic partnerships with retail customers and evolving capabilities, not only in the physical world but also online. In the past few years, Clorox has boosted digital capabilities, leading to a strong performance in e-commerce, which is now a significant revenue contributor. The company recorded nearly 40% annual growth in e-commerce sales in the last two fiscals. The company is on track to meet its 2020 target of generating $500 million of e-commerce sales.
Though earnings and sales topped estimates in third-quarter fiscal 2018, the soft-margin trend continued to be a headwind. The company witnessed significant pressure on gross margin in the reported quarter, owing to elevated commodity and logistics expenses, which are likely to continue hurting margins in fiscal 2018. Driven by the soft margins, the company also trimmed its earnings guidance for fiscal 2018.
Clorox’s robust earnings trend, as well as growth strategies, positions it for growth ahead. However, soft margins may be a hurdle to earnings growth in the near-term, keeping investors worried.
Do Consumer Staples Stocks Grab Your Attention? Check These
Investors interested in the space may consider The Boston Beer Company, Inc. (SAM - Free Report) , Church & Dwight Co., Inc. (CHD - Free Report) and Brown-Forman Corporation (BF.B - Free Report) . While Boston Beer flaunts a Zacks Rank #1 (Strong Buy), Church & Dwight and Brown-Forman carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Boston Beer delivered a positive earnings surprise of 41.8% in the trailing four quarters and has long-term growth rate of 9.5%.
Church & Dwight pulled off an average positive earnings surprise of 4.2% in the trailing four quarters. Additionally, it has long-term earnings growth rate of 10.1%.
Brown-Forman delivered an average positive earnings surprise of 9.3% in the trailing four quarters. Moreover, the stock has returned 45.9% in the past year.
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