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Will Clorox (CLX) Beat Q4 Earnings Despite Margin Woes?

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The Clorox Company (CLX - Free Report) is slated to report fourth-quarter fiscal 2018 results on Aug 2. It delivered a positive earnings surprise of 5.4% in the last reported quarter.

A glimpse of the company’s earnings performance in the trailing four quarters shows that it has outpaced estimates by an average positive surprise of 3.1%. Additionally, the company’s surprise history reveals that it has delivered an earnings beat in each of the past six quarters and topped sales estimates in three of the last four quarters.

The Clorox Company Price and EPS Surprise


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

Although the Zacks Consensus Estimate of $1.58 for the quarter under review declined by a penny over the last 30 days, the same reflects year-over-year growth of 3.3%.

Let’s find out what’s in store for Clorox in the upcoming fiscal fourth-quarter earnings release.

Factors at Play

Clorox is moving ahead with its long-term plans, given the smooth progress on its 2020 Strategy as well as efforts to boost e-commerce sales. The 2020 Strategy is focused on the improvement of categories and overall market share. These actions have been aiding the company’s quarterly results, which is clear from its robust surprise trend. The company remains committed to investing in product and brand differentiation to safeguard value proposition. Driven by these factors, shares of Clorox have rallied 16.5% in the past three months, outperforming the industry’s increase of 9.3%.


Though earnings and sales topped estimates in third-quarter fiscal 2018, soft margins trend continued to be a headwind. The company witnessed a significant pressure on gross margin in the fiscal third quarter, owing to elevated commodity and logistics expenses, which are likely to continue hurting margins in fiscal 2018. The company expects gross margin to decline 100-150 bps in fiscal 2018 due to estimated impacts from one-time charges, with respect to the Nutranext acquisition as well as higher logistics and commodity expenses.

Driven by the soft margin view, the company also trimmed its earnings guidance for fiscal 2018. It now anticipates fiscal 2018 earnings to be $6.15-$6.30 per share, down from the previous guidance of $6.17-$6.37 per share.

Nonetheless, Clorox projects sales growth of nearly 3% for fiscal 2018, which is at the higher end of its previous guidance of 1-3%. The upbeat view is driven by incremental sales from innovation-led products and acquisitions as well as improved pricing. The guidance includes the contribution of 1 point from the Nutranext acquisition and an estimated 3 points gain from product innovation.

Additionally, Clorox remains committed toward brand management and improvement in margins through cost saving, and productivity initiatives. It is making strategic partnerships with retail customers and evolving capabilities in both the physical world and online to boost the top line. It also remains committed to investing in product and brand differentiation to safeguard value proposition. Further, the company’s focus on strong investments in demand building, including digital marketing, e-commerce and product innovation pipeline bode well.

These tailwinds might contribute to the company’s top line and boost profitability. Notably, analysts polled by Zacks expect quarterly revenues of $1.72 billion for the fiscal fourth quarter, up 4.2% from the year-ago quarter.

In the light of these above-mentioned factors, let’s wait and see what lies ahead of Clorox in fourth-quarter fiscal 2018.

What the Zacks Model Predicts

Our proven model does not conclusively show that Clorox is likely to beat earnings estimates this quarter. This is because 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Clorox currently has a Zacks Rank #3. However, the company’s Earnings ESP of -0.07% lowers the chances of reporting a beat in the upcoming release.

Stocks With Favorable Combination

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

Pinnacle Foods Inc. has an Earnings ESP of +4.66% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dean Foods Company (DF - Free Report) has an Earnings ESP of +11.63% and a Zacks Rank #2.

Church & Dwight Co., Inc. (CHD - Free Report) has an Earnings ESP of +0.06% and a Zacks Rank of 3.

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