The Clorox Company (CLX - Free Report) posted mixed fourth-quarter fiscal 2018 results, wherein earnings surpassed the Zacks Consensus Estimate while revenues missed the same. Both top and bottom line improved on a year-over-year basis. Notably, this marked the company’s seventh straight quarter of earnings beat, with revenues missing estimates after exceeding the same in third-quarter fiscal 2018.
Quarterly earnings from continuing operations of $1.66 per share were up 8% year over year and surpassed the Zacks Consensus Estimate of $1.58. The bottom line was primarily driven by higher revenues, lower tax rate and advertising and sales promotion costs as well as gains from cost savings; and a lower effective tax rate. It also includes gain of 8 cents from the Nutranext acquisition. The upside was partly offset by contraction in gross margin and increase in commodity and logistics expenses.
Net revenues of $1,691 million advanced 3% year over year but came below the Zacks Consensus Estimate of $1,715 million. The year-over-year top-line improvement was backed by 3 percentage points from the Nutranext acquisition, which was somewhat compensated by nearly 1 percentage point of negative impact from both Aplicare divestiture and foreign currency exchange rates, particularly in Argentina. Also, revenues were aided by higher volumes driven by innovation and rise in prices, partly offset by unfavorable mix.
Clorox witnessed significant pressure on gross margin, which contracted 170 basis points (bps) to 44% in the quarter. Lower margins can be attributed to elevated commodity and logistics expenses, which were partly mitigated with gains from cost savings and higher prices. In addition, gross margin included 60 bps of unfavorable impact from costs associated with the Nutranext buyout.
Revenues by Segment
Revenues in the Cleaning segment improved 3% to $516 million, mainly driven by gains in Home Care, showing strength in Clorox disinfecting wipes along with gains from Scentiva branded products. This uptick was partly offset by lower sales at the Professional Products business, particularly due to the sale of the Aplicare business in August 2017.
Household revenues dipped 3% to $615 million due to lower shipments in Charcoal and decline in merchandising. Charcoal revenues were more than offset by robust sales and higher merchandising in the club channel.
Revenues at the Lifestyle segment improved 21% to $311 million mainly driven the Nutranext buyout.
At the International business segment, revenues fell 2% to $249 million as gains from price increases were more than offset by unfavorable foreign currency impact.
Clorox ended the quarter with cash and cash equivalents of $131 million, and long-term debt of $2,284 million. In fiscal 2018, the company generated $974 million of net cash from continuing operations.
Following the mixed quarterly results, Clorox issued guidance for fiscal 2019. The company now projects revenue growth to be in the 2-4% range over fiscal 2018 level. The improvement will be backed by innovation, which is likely to deliver a rise of nearly 3 percentage points and combined positive effect from the Nutranext acquisition along with Aplicare divestiture of 2.5 percentage points. These will be partly offset by roughly 2 percentage points from currency headwinds.
Gross margin is estimated in the range of flat to up at a modest rate backed by gains from higher prices and cost-savings efforts, somewhat offset by rise in commodity and logistics spending. Further, advertising and sales promotion spending is anticipated to be roughly 10% of revenues. Selling and administrative expenses are projected to be nearly14% of revenues.
For fiscal 2019, the company envisions effective tax rate of 23-24%.
Consequently, management now anticipates fiscal 2019 earnings per share from continuing operations to be in the range of $6.32-$6.52, up from $6.26 in fiscal 2018. Notably, earnings projection includes nearly 8-12 cents from the Nutranext acquisition. The Zacks Consensus Estimate for the fiscal year is pegged at $6.36.
Further, the company is expected to buy back nearly 50% of its $2-billion share repurchase authorization in fiscal 2019.
Clorox carries a Zacks Rank #3 (Hold). Shares of the company have gained 14% in the past three months, outperforming the industry’s 9.7% rally.
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