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Clorox's (CLX) 2020 Strategy on Track, Margin Woes Linger

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Shares of The Clorox Company (CLX - Free Report) have not only outperformed the industry but also the Consumer Staples sector in the past six months. This Zacks Rank #3 (Hold) company jumped 22% compared with the industry’s growth of 10.3% and against the sector’s decline of 7.3%.  



Notably, Clorox focuses on its 2020 Strategy and Go Lean Strategy that will enable the company to further boost growth. Additionally, the company’s robust e-commerce bodes well.

Growth Endeavors

Clorox is progressing well with its 2020 Strategy. With this, Clorox seeks to gain market share and boost growth for the improvement of categories. Apart from this, the strategy aims 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. In order to achieve this, the company has identified 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.

Further, the company is actively pursuing strategic partnerships with retail customers, and evolving omni-channel capabilities. Also, the company’s strong performance in e-commerce is likely to boost top-line growth. Solid comps were backed by the company’s efforts in the digital front. Looking ahead, the company is ahead of track and nearing its 2020 target of achieving $500 million from e-commerce sales.

Moreover, Clorox, which shares space with Colgate-Palmolive Company (CL - Free Report) , is well positioned with a diversified brand portfolio to generate above-average industry growth and sustain it in the currently challenging environment. The company is committed toward investing in product and brand differentiation to safeguard value proposition. Also, the company is making efforts by undertaking cost savings and productivity initiatives to improve margins. In this regard, the company’s Go Lean strategy in the International unit remains focused on improving margins through operational efficiencies.

Margins a Concern

Despite such upsides, Clorox is grappling with significant pressure on gross margin. In the first quarter of fiscal 2019, gross margin contracted 150 basis points (bps) to 43.4% mainly due to elevated commodity, manufacturing and logistics expenses. In fiscal 2019, gross margin is estimated to remain flat as gains from higher prices and cost-saving efforts are expected to be offset by increased costs and adverse foreign currency exchange rates. Though management expects gross margin expansion in the second half of fiscal 2019, gross margin is likely to remain soft in the first half.

Interested in Consumer Staples Stocks? Check These

Procter & Gamble (PG - Free Report) has an impressive long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Church & Dwight Co., Inc. (CHD - Free Report) is also a Zacks Rank #2 stock, which has an expected long-term earnings growth rate of 10.1%.

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