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Pricing Aids Clorox's (CLX) Q1 Earnings Amid Cyberattack Woes
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The Clorox Company (CLX - Free Report) reported first-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate but declined year over year. Results were mainly impacted by lower volumes resulting from the cyberattack that occurred in August.
However, the company’s results reflect significant gains from its pricing actions and ongoing cost-saving initiatives. This helped in delivering results ahead of the recent outlook outlined in the preliminary update. Results also benefited from a solid innovation pipeline and digital transformation. CLX has been on track with its streamlined operating model, which aims to improve efficiency.
The market cheered CLX after the better-than-anticipated results, with its shares gaining 8.6% in the after-market trading session on Nov 1. However, shares of the Zacks Rank #5 (Strong Sell) company have lost 30.5% in the past three months compared with the industry’s 6% decline.
Image Source: Zacks Investment Research
Q1 Update
Adjusted earnings of 49 cents per share declined 47% year over year. Yet, the bottom line beat the Zacks Consensus Estimate of a loss of 20 cents. Results also surpassed the company’s preliminary bottom-line expectations between a loss of 40 cents and breakeven.
Although earnings dipped year over year due to lower volume resulting from the cyberattack, CLX’s pricing and ongoing cast-saving initiatives contributed to its better-than-expected performance.
Adjusted earnings excluded one-time costs related to the recent cyberattack incident, and ongoing digital capabilities and productivity enhancements investment of 15 cents and 17 cents, respectively.
On a GAAP basis, the company reported earnings of 17 cents per share, reflecting a plunge of 75% from 68 cents reported a year ago. On the preliminary results release, management anticipated a loss of 35-75 cents per share, on a GAAP basis.
Net sales of $1,386 million decreased 20% from the year-ago quarter but surpassed the Zacks Consensus Estimate of $1,296 million. On an organic basis, sales fell 18% year over year. The downtick was mainly caused by lower volumes resulting from the cyberattack, partly negated by a favorable price mix.
Gross margin expanded 240 bps year over year to 38.4% in the fiscal first quarter. Gains from pricing and cost-saving initiatives were offset by the impact of lower volume. The gross margin was significantly ahead of our projection of a 720-bps decline to 28.8% for the fiscal first quarter.
We note that the company, on its preliminary update, predicted gross margin decline from the year-ago figure. It anticipated the impacts of the cybersecurity attack, including lower cost absorption due to reduced volume, to more than offset the benefits of pricing, cost savings and supply-chain optimization.
The Clorox Company Price, Consensus and EPS Surprise
Sales of the Health and Wellness segment tumbled 23% to $504 million, which lagged our estimate of $512.5 million. This was due to a decline of 29 points in volume offset by 6 points gain from a favorable price mix. It reflected lower volumes and resulting revenue declines in both Cleaning and Professional Products businesses.
The Household segment’s sales declined 23% to $325 million but came ahead of our estimate of $296.1 million. The decrease resulted from 30 points decline in volume partly negated by 7 points gain from a favorable price mix. Each of the segment’s businesses, including Bags and Wraps, Cat Litter, and Grilling Bags, reported sales declines.
Sales in the Lifestyle segment plunged 28% year over year to $229 million, which outpaced our estimate of $227.2 million. This was mainly driven by 37 points decline in volume offset by 9 points gain from a favorable price mix. The segment’s three businesses – Food, Natural Personal Care and Water Filtration Food – reported sales declines.
In the International segment, sales of $270 million were down 5% year over year but outshined our estimate of $233.7 million. This was driven by a volume decline of 13 points and 14 points impact from unfavorable currency offset by 22 points gain from favorable price mix. Organic sales for the segment improved 9%.
Financials
Clorox ended first-quarter fiscal 2024 with cash and cash equivalents of $518 million, and long-term debt of $2,478 million.
Fiscal 2024 Guidance
For fiscal 2024, management envisions net sales to decline mid-to-high single digits year over year. The sales decline is expected to reflect the impacts of the cyberattack. The guidance includes about 2 points of negative currency impact.
Gross margin is projected to be flat due to the combined benefits of pricing actions, cost savings and supply-chain-optimization efforts. Continued input cost inflation and the cyberattack impacts are likely to offset the positives.
CLX suggests selling and administrative expenses to be 16% of sales, including the impact of 2 points from its strategic investments in digital capabilities, implementation of the streamlined operating model and expenses incurred for the cyberattack.
Clorox anticipates advertising and sales promotion spending to be 11% of sales. This is likely to be driven by its commitment to investing in its brand portfolio. The effective tax rate is likely to be 23-24%.
The company expects GAAP earnings of $2.10-$2.60 per share for fiscal 2024. The guidance suggests a year-over-year increase of 75-117%. On an adjusted basis, earnings per share are anticipated to be $4.30-$4.80, indicating a decline of 6-16% year over year.
This view excludes the 70 cents impact of long-term strategic investment in digital capabilities and productivity enhancements, 25 cents cost from streamlined operating model initiatives and incremental expense of 25 cents from the cyberattack. Additionally, adjusted earnings per share are expected to exclude a non-cash charge of $1.00 associated with the termination of the company's domestic qualified pension plan.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Procter & Gamble (PG - Free Report) , Coty (COTY - Free Report) and Inter Parfums (IPAR - Free Report) .
The Zacks Consensus Estimate for Procter & Gamble’s current financial year’s sales and earnings suggests growth of 4% and 8.6%, respectively, from the year-ago numbers.
Coty is a beauty products company, which currently carries a Zacks Rank #2. COTY has a trailing four-quarter earnings surprise of 132.5%, on average.
The Zacks Consensus Estimate for COTY’s current financial-year sales implies a rise of 8.7% from the year-ago figure. However, the consensus mark for earnings suggests a decline of 13.2% year over year.
Inter Parfums is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for IPAR’s current financial-year sales and earnings indicates advancements of 20.6% and 14.9%, respectively, from the prior-year figures. It has a trailing four-quarter earnings surprise of 45.9%, on average.
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Pricing Aids Clorox's (CLX) Q1 Earnings Amid Cyberattack Woes
The Clorox Company (CLX - Free Report) reported first-quarter fiscal 2024 results, wherein the top and bottom lines beat the Zacks Consensus Estimate but declined year over year. Results were mainly impacted by lower volumes resulting from the cyberattack that occurred in August.
However, the company’s results reflect significant gains from its pricing actions and ongoing cost-saving initiatives. This helped in delivering results ahead of the recent outlook outlined in the preliminary update. Results also benefited from a solid innovation pipeline and digital transformation. CLX has been on track with its streamlined operating model, which aims to improve efficiency.
The market cheered CLX after the better-than-anticipated results, with its shares gaining 8.6% in the after-market trading session on Nov 1. However, shares of the Zacks Rank #5 (Strong Sell) company have lost 30.5% in the past three months compared with the industry’s 6% decline.
Image Source: Zacks Investment Research
Q1 Update
Adjusted earnings of 49 cents per share declined 47% year over year. Yet, the bottom line beat the Zacks Consensus Estimate of a loss of 20 cents. Results also surpassed the company’s preliminary bottom-line expectations between a loss of 40 cents and breakeven.
Although earnings dipped year over year due to lower volume resulting from the cyberattack, CLX’s pricing and ongoing cast-saving initiatives contributed to its better-than-expected performance.
Adjusted earnings excluded one-time costs related to the recent cyberattack incident, and ongoing digital capabilities and productivity enhancements investment of 15 cents and 17 cents, respectively.
On a GAAP basis, the company reported earnings of 17 cents per share, reflecting a plunge of 75% from 68 cents reported a year ago. On the preliminary results release, management anticipated a loss of 35-75 cents per share, on a GAAP basis.
Net sales of $1,386 million decreased 20% from the year-ago quarter but surpassed the Zacks Consensus Estimate of $1,296 million. On an organic basis, sales fell 18% year over year. The downtick was mainly caused by lower volumes resulting from the cyberattack, partly negated by a favorable price mix.
Gross margin expanded 240 bps year over year to 38.4% in the fiscal first quarter. Gains from pricing and cost-saving initiatives were offset by the impact of lower volume. The gross margin was significantly ahead of our projection of a 720-bps decline to 28.8% for the fiscal first quarter.
We note that the company, on its preliminary update, predicted gross margin decline from the year-ago figure. It anticipated the impacts of the cybersecurity attack, including lower cost absorption due to reduced volume, to more than offset the benefits of pricing, cost savings and supply-chain optimization.
The Clorox Company Price, Consensus and EPS Surprise
The Clorox Company price-consensus-eps-surprise-chart | The Clorox Company Quote
Segmental Discussion
Sales of the Health and Wellness segment tumbled 23% to $504 million, which lagged our estimate of $512.5 million. This was due to a decline of 29 points in volume offset by 6 points gain from a favorable price mix. It reflected lower volumes and resulting revenue declines in both Cleaning and Professional Products businesses.
The Household segment’s sales declined 23% to $325 million but came ahead of our estimate of $296.1 million. The decrease resulted from 30 points decline in volume partly negated by 7 points gain from a favorable price mix. Each of the segment’s businesses, including Bags and Wraps, Cat Litter, and Grilling Bags, reported sales declines.
Sales in the Lifestyle segment plunged 28% year over year to $229 million, which outpaced our estimate of $227.2 million. This was mainly driven by 37 points decline in volume offset by 9 points gain from a favorable price mix. The segment’s three businesses – Food, Natural Personal Care and Water Filtration Food – reported sales declines.
In the International segment, sales of $270 million were down 5% year over year but outshined our estimate of $233.7 million. This was driven by a volume decline of 13 points and 14 points impact from unfavorable currency offset by 22 points gain from favorable price mix. Organic sales for the segment improved 9%.
Financials
Clorox ended first-quarter fiscal 2024 with cash and cash equivalents of $518 million, and long-term debt of $2,478 million.
Fiscal 2024 Guidance
For fiscal 2024, management envisions net sales to decline mid-to-high single digits year over year. The sales decline is expected to reflect the impacts of the cyberattack. The guidance includes about 2 points of negative currency impact.
Gross margin is projected to be flat due to the combined benefits of pricing actions, cost savings and supply-chain-optimization efforts. Continued input cost inflation and the cyberattack impacts are likely to offset the positives.
CLX suggests selling and administrative expenses to be 16% of sales, including the impact of 2 points from its strategic investments in digital capabilities, implementation of the streamlined operating model and expenses incurred for the cyberattack.
Clorox anticipates advertising and sales promotion spending to be 11% of sales. This is likely to be driven by its commitment to investing in its brand portfolio. The effective tax rate is likely to be 23-24%.
The company expects GAAP earnings of $2.10-$2.60 per share for fiscal 2024. The guidance suggests a year-over-year increase of 75-117%. On an adjusted basis, earnings per share are anticipated to be $4.30-$4.80, indicating a decline of 6-16% year over year.
This view excludes the 70 cents impact of long-term strategic investment in digital capabilities and productivity enhancements, 25 cents cost from streamlined operating model initiatives and incremental expense of 25 cents from the cyberattack. Additionally, adjusted earnings per share are expected to exclude a non-cash charge of $1.00 associated with the termination of the company's domestic qualified pension plan.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Procter & Gamble (PG - Free Report) , Coty (COTY - Free Report) and Inter Parfums (IPAR - Free Report) .
Procter & Gamble, a branded consumer products company, currently carries a Zacks Rank #2 (Buy). PG has a trailing four-quarter earnings surprise of 3.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Procter & Gamble’s current financial year’s sales and earnings suggests growth of 4% and 8.6%, respectively, from the year-ago numbers.
Coty is a beauty products company, which currently carries a Zacks Rank #2. COTY has a trailing four-quarter earnings surprise of 132.5%, on average.
The Zacks Consensus Estimate for COTY’s current financial-year sales implies a rise of 8.7% from the year-ago figure. However, the consensus mark for earnings suggests a decline of 13.2% year over year.
Inter Parfums is engaged in the manufacturing, distribution and marketing of a wide range of fragrances and related products. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for IPAR’s current financial-year sales and earnings indicates advancements of 20.6% and 14.9%, respectively, from the prior-year figures. It has a trailing four-quarter earnings surprise of 45.9%, on average.