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Clorox (CLX) Ruins Trend as Q4 Earnings Miss; Guides FY17
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The Clorox Company (CLX - Free Report) upset its solid surprise trend as the company’s earnings succumbed to a miss in fourth-quarter fiscal 2016, after delivering four consecutive beats. The top line, however, remained strong, thanks to robust volume growth across all segments.
Quarterly earnings from continuing operations of $1.26 per share declined 12.5% year over year, missing the Zacks Consensus Estimate by a couple of cents as benefits from solid sales were more than offset by higher advertisement and promotional expenses. These expenses primarily represent additional investments undertaken by the company, as part of its portfolio innovation plans, which in turn are directed toward boosting long-term profitability.
On the positive side, however, net sales of $1,600 million advanced 3% year over year, also surpassing the Zacks Consensus Estimate of $1,587 million. During the quarter, gains from 7% volume growth, higher pricing at the International business and benefits from RenewLife (acquired in May 2016) were somewhat negated by over 2% impact from unfavorable currency effects. On a currency-neutral basis, revenues increased 5% in the reported quarter.
However, Clorox’s gross margin contracted 20 basis points (bps) to 45.4% in the quarter, as greater manufacturing and logistics expenses; one-time integration expenses related to the RenewLife buyout; unfavorable mix and increased promotional costs more than offset the gains from efficient cost savings, lower commodity costs and improved pricing.
Revenue by Segment
Sales in the Cleaning segment improved 6% to $493 million, with a 12% jump in volumes. Volumes mainly benefited from the strength in Home Care brands, particularly Clorox disinfecting wipes coupled with strong volumes at the Professional Products’ Clorox disinfecting and germicidal wipes.
Household sales grew 5% to $609 million, with volumes rising 7%. Volumes were aided by strength noted in several brands, like the introduction of Fresh Step with Febreze cat litter. Alongside, the segment benefited from the RenewLife acquisition.
Sales at the Lifestyle segment rose 4% to $254 million, driven by 5% advancement in volumes, which in turn benefited from double-digit growth witnessed in Natural Personal Care, along with robust performance at Dressings and Sauces.
In the International business segment, Clorox’s sales fell 9% to $244 million, reflecting the negative impact of currency. On a currency-neutral basis, sales jumped 5% year over year. Volumes at the segment improved 1%, mainly driven by Canadian and Latin American gains.
FY16 at a Glance
Clorox’s earnings jumped 8% year over year to $4.92 per share for fiscal 2016. However, the figure fell short of the Zacks Consensus Estimate of $4.95. Further, net sales of $5,761 million went up 2% year over year, faring better than our estimate of $5,749 million.
Clorox ended the fiscal year with cash and cash equivalents of $401 million, and long-term debt of $1,797 million. During the year, the company generated $768 million of net cash from continuing operations compared with $858 million in the year-ago period.
Looking Ahead
Management remains pleased with its overall fiscal 2016 performance, which witnessed solid sales and volume growth in all segments, alongside delivering impressive gross margin and earnings – reflecting its focus on its 2020 Strategy. This strategy has been helping the company achieve cost savings and productivity enhancements. Going forward, the company remains on track to keep this momentum going, as is also evident from its innovative moves made in the fourth quarter.
These include the company’s investments in various demand-building plans that in turn include making innovations to its portfolio and digital marketing, which are aimed at enhancing brand value. These investments are expected to be accretive to the company in the long term.
That said, management is all set for another strong year, given its constant focus on these investments and its cost savings plan. However, management’s fiscal 2017 guidance also takes into account tough year-over-year comparisons, a challenging macroeconomic environment and adverse currency movements, which may pose concerns.
Clorox expects fiscal 2017 sales growth in a range of 2%–4%, including a positive impact from the RenewLife buyout of nearly 2 points and adverse currency impact of nearly the same amount. On a currency-neutral basis, sales growth is anticipated to range from 4%–6% in the fiscal.
Further, EBIT margin is estimated to expand in a band of 25–50 bps, mainly backed by lower selling and administrative costs.
Given the adoption of ASU 2016-09, the company anticipates effective tax rate for the fiscal in the range of 30%–31%.
Finally, the company envisions fiscal 2017 earnings from continuing operations to range from $5.38–$5.85 per share, including the estimated gain from resorting to the use of ASU 2016-09. Excluding this, earnings from continuing operations for fiscal 2017 are expected in a band of $5.13–$5.28 per share.
Zacks Rank
Clorox currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the same industry is Colgate-Palmolive Co. (CL - Free Report) , carrying a Zacks Rank #2 (Buy). Other stocks in the consumer staples sector that warrant a look include Ingredion Incorporated (INGR - Free Report) and The J. M. Smucker Company (SJM - Free Report) , with a Zacks Rank #1 (Strong Buy) each.
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Clorox (CLX) Ruins Trend as Q4 Earnings Miss; Guides FY17
The Clorox Company (CLX - Free Report) upset its solid surprise trend as the company’s earnings succumbed to a miss in fourth-quarter fiscal 2016, after delivering four consecutive beats. The top line, however, remained strong, thanks to robust volume growth across all segments.
Quarterly earnings from continuing operations of $1.26 per share declined 12.5% year over year, missing the Zacks Consensus Estimate by a couple of cents as benefits from solid sales were more than offset by higher advertisement and promotional expenses. These expenses primarily represent additional investments undertaken by the company, as part of its portfolio innovation plans, which in turn are directed toward boosting long-term profitability.
On the positive side, however, net sales of $1,600 million advanced 3% year over year, also surpassing the Zacks Consensus Estimate of $1,587 million. During the quarter, gains from 7% volume growth, higher pricing at the International business and benefits from RenewLife (acquired in May 2016) were somewhat negated by over 2% impact from unfavorable currency effects. On a currency-neutral basis, revenues increased 5% in the reported quarter.
However, Clorox’s gross margin contracted 20 basis points (bps) to 45.4% in the quarter, as greater manufacturing and logistics expenses; one-time integration expenses related to the RenewLife buyout; unfavorable mix and increased promotional costs more than offset the gains from efficient cost savings, lower commodity costs and improved pricing.
Revenue by Segment
Sales in the Cleaning segment improved 6% to $493 million, with a 12% jump in volumes. Volumes mainly benefited from the strength in Home Care brands, particularly Clorox disinfecting wipes coupled with strong volumes at the Professional Products’ Clorox disinfecting and germicidal wipes.
Household sales grew 5% to $609 million, with volumes rising 7%. Volumes were aided by strength noted in several brands, like the introduction of Fresh Step with Febreze cat litter. Alongside, the segment benefited from the RenewLife acquisition.
Sales at the Lifestyle segment rose 4% to $254 million, driven by 5% advancement in volumes, which in turn benefited from double-digit growth witnessed in Natural Personal Care, along with robust performance at Dressings and Sauces.
In the International business segment, Clorox’s sales fell 9% to $244 million, reflecting the negative impact of currency. On a currency-neutral basis, sales jumped 5% year over year. Volumes at the segment improved 1%, mainly driven by Canadian and Latin American gains.
FY16 at a Glance
Clorox’s earnings jumped 8% year over year to $4.92 per share for fiscal 2016. However, the figure fell short of the Zacks Consensus Estimate of $4.95. Further, net sales of $5,761 million went up 2% year over year, faring better than our estimate of $5,749 million.
CLOROX CO Price, Consensus and EPS Surprise
CLOROX CO Price, Consensus and EPS Surprise | CLOROX CO Quote
Financials
Clorox ended the fiscal year with cash and cash equivalents of $401 million, and long-term debt of $1,797 million. During the year, the company generated $768 million of net cash from continuing operations compared with $858 million in the year-ago period.
Looking Ahead
Management remains pleased with its overall fiscal 2016 performance, which witnessed solid sales and volume growth in all segments, alongside delivering impressive gross margin and earnings – reflecting its focus on its 2020 Strategy. This strategy has been helping the company achieve cost savings and productivity enhancements. Going forward, the company remains on track to keep this momentum going, as is also evident from its innovative moves made in the fourth quarter.
These include the company’s investments in various demand-building plans that in turn include making innovations to its portfolio and digital marketing, which are aimed at enhancing brand value. These investments are expected to be accretive to the company in the long term.
That said, management is all set for another strong year, given its constant focus on these investments and its cost savings plan. However, management’s fiscal 2017 guidance also takes into account tough year-over-year comparisons, a challenging macroeconomic environment and adverse currency movements, which may pose concerns.
Clorox expects fiscal 2017 sales growth in a range of 2%–4%, including a positive impact from the RenewLife buyout of nearly 2 points and adverse currency impact of nearly the same amount. On a currency-neutral basis, sales growth is anticipated to range from 4%–6% in the fiscal.
Further, EBIT margin is estimated to expand in a band of 25–50 bps, mainly backed by lower selling and administrative costs.
Given the adoption of ASU 2016-09, the company anticipates effective tax rate for the fiscal in the range of 30%–31%.
Finally, the company envisions fiscal 2017 earnings from continuing operations to range from $5.38–$5.85 per share, including the estimated gain from resorting to the use of ASU 2016-09. Excluding this, earnings from continuing operations for fiscal 2017 are expected in a band of $5.13–$5.28 per share.
Zacks Rank
Clorox currently carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the same industry is Colgate-Palmolive Co. (CL - Free Report) , carrying a Zacks Rank #2 (Buy). Other stocks in the consumer staples sector that warrant a look include Ingredion Incorporated (INGR - Free Report) and The J. M. Smucker Company (SJM - Free Report) , with a Zacks Rank #1 (Strong Buy) each.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>