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Clorox (CLX) Up 0.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Clorox (CLX - Free Report) . Shares have added about 0.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Clorox due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Clorox Q3 Earnings & Sales Miss Estimates
 
The Clorox Company reported dismal third-quarter fiscal 2019 results, wherein earnings and revenues missed estimates. However, the top line and the bottom line improved year over year. Further, the company lowered its outlook for fiscal 2019.

Q3 Highlights

Quarterly earnings from continuing operations of $1.44 per share increased 5.1% year over year but missed the Zacks Consensus Estimate of $1.47. The bottom-line improvement was mainly backed by lower tax rate, along with higher sales and gains from cost savings.

Net sales of $1,551 million advanced 2.2% year over year but missed the Zacks Consensus Estimate of $1,565 million. The year-over-year improvement in the top line was driven by solid execution of pricing and cost-saving plans. The company’s sales benefited from a contribution of 3 percentage points from the Nutranext acquisition. However, these gains were partly negated by 3 percentage point negative impact from foreign currency.

Gaining from recent price increases and cost savings, Clorox witnessed gross margin expansion of 60 bps to 43.4% in the fiscal third quarter. However, the aforementioned gains were partly negated by elevated commodity, adverse currency fluctuation as well as manufacturing and logistics expenses.

Segmental Discussion

Sales of the Cleaning segment decreased 1% to $508 million, due to decline in Laundry and Professional Products, marginally compensated by improvement in Home Care category. Sales decline was led by considerably milder cold and flu season compared to prior year, resulting in lower sales in the Wipes category and in Professional Products.

The Household segment’s sales slipped 1% to $489 million mainly due to fall in Bags and Wraps. These categories were largely impacted by price gaps and increased competition, partially offset gains in Cat Litter, driven by great results for the Fresh Step Clean Paws innovation and higher consumption of Charcoal.

Sales of the Lifestyle segment increased 23% to $309 million, mainly driven by the Nutranext buyout and significant increase in Natural Personal Care and Water Filtration.

At the International segment, sales dropped 5% to $245 million as gains from higher prices were more than offset by unfavorable foreign currency impacts.

Financials

Clorox ended the fiscal third quarter with cash and cash equivalents of $178 million, and long-term debt of $2,286 million. In the nine months of fiscal 2019, the company generated $603 million of net cash from continuing operations.

FY19 Guidance

Clorox narrowed its guidance for fiscal 2019. The company now projects sales growth of 2-3% compared with prior guidance of 2-4%. The softer sales view is mainly due to a milder cold and flu season compared with the prior-year quarter, as well as increased promotional activity in the Wipes category. The lowered sales view is related to expectations of softer sales in Bags and Wraps business, owing to widened price gaps as a result of price increase and higher competitive promotions.

Gross margin is estimated to remain flat in fiscal 2019 as gains from higher prices and cost-savings efforts are expected to be offset by increased costs and adverse currency rates. Advertising and sales promotion spending is anticipated to be roughly 10% of sales. Selling and administrative expenses are projected to be nearly 14% of sales. The company now envisions effective tax rate in the range of 20-21% compared to previous view of 23-24%.

For fiscal 2019, management anticipates earnings per share of $6.25-$6.35 from continuing operations compared to prior view of $6.20-$6.40. Notably, earnings projection includes nearly 8-12 cents from the Nutranext acquisition. It also includes negative impact of nearly 5-7 cents from tariffs, which are hurting certain business segments.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Clorox has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Clorox has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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