Shares of The Clorox Company (CLX Quick QuoteCLX - Free Report) climbed 4.2% in the after-market trading session on Aug 1 following its fourth-quarter fiscal 2024 results. Despite a decline and miss in net sales, the company's earnings were strong, surpassing the Zacks Consensus Estimate and showing a year-over-year improvement. The positive earnings were driven by pricing actions and gross margin expansion due to cost-saving initiatives. Management's fiscal 2025 earnings projection, which exceeded analysts' expectations, also helped lift investor sentiment.

The positive sentiment is further supported by Clorox's successful recovery from a cyberattack. The company has fully restored its distribution capabilities and reclaimed the majority of lost market share. This recovery was driven by a revitalized supply chain and robust merchandising efforts across its portfolio.

Moreover, Clorox has completed the implementation of a streamlined operating model. This new structure is expected to generate ongoing annual cost savings of approximately $100 million, significantly enhancing operational efficiency.

In line with its strategic focus, Clorox announced a definitive agreement to divest its Better Health Vitamins, Minerals and Supplements business. The entire operation will be sold to Piping Rock Health Products. This divestiture aligns with Clorox's strategy to concentrate on its core areas, potentially unlocking further value for shareholders. The transaction is expected to conclude in the first quarter of fiscal 2025.

Q4 Update

Adjusted earnings of $1.82 per share jumped 9% year over year and beat the Zacks Consensus Estimate of $1.54. Bottom-line results benefited from an improved gross margin and a decline in selling and administrative expenses. These were partly offset by soft net sales and increased advertising investments.

Net sales of $1,903 million dipped 6% from the year-ago quarter's level and fell short of the Zacks Consensus Estimate of $1,970 million. This decline can be attributed to an unfavorable price mix and lower volumes, as well as the impact of the divestiture of the Argentina business. On an organic basis, sales fell 3% year over year.

The gross margin expanded 380 basis points to 46.5% in the quarter under review. Lower manufacturing and logistics expenses, cost-containment endeavors and favorable commodity costs contributed toward margin expansion. However, higher trade promotion expenditures hurt the same to an extent.

Segment Discussion

Sales of the Health and Wellness segment remained almost flat year over year at $652 million, closely aligning with our estimate of $651 million. We note that a two-point increase in volume was offset by a two-point decline due to an unfavorable price mix. Segment-adjusted EBIT grew 15%, primarily due to favorable manufacturing and logistics costs, along with reduced selling and administrative expenses. These gains were partly offset by higher advertising investments.

Cleaning sales grew, primarily fueled by the restoration of distribution channels and robust consumption. This was further supported by the introduction of product innovations and enhanced merchandising efforts. Conversely, sales in the Professional Products segment saw a decline. This was mainly due to reduced shipments of Pine-Sol products as distributors transitioned to the new Pine-Sol concentrated cleaner.

The Household segment’s sales were down 10% to $597 million and came below our estimate of $656.4 million. The downside resulted from five points of lower volume and five points of unfavorable price mix. Segment-adjusted EBIT fell 31% owing to muted sales performance. This was partly mitigated by effective cost management, and favorable manufacturing and logistics costs.

Sales for Bags and Wraps, as well as Cat Litter, decreased, primarily due to delayed distribution recovery, stiff competition and increased trade promotion spending. Grilling sales also fell, mainly driven by reduced consumption stemming from unfavorable seasonal weather conditions.

Sales in the Lifestyle segment decreased 2% to $328 million but surpassed our estimate of $316.4 million. The decline was mainly driven by two points of unfavorable price mix. Segment-adjusted EBIT fell 9% owing to higher advertising investments and soft sales. This was partly mitigated by favorable commodity costs and cost savings.

Water Filtration sales declined because of reduced consumption, largely due to a shift in the seasonal timing of back-to-school promotions at key retailers and higher trade promotion spending. The Natural Personal Care segment also saw a decrease, mainly due to increased competitive pressure and distribution losses in the non-core portion of the portfolio. In contrast, Food sales increased, driven by strong consumer demand and innovations.

In the International segment, sales declined 11% to $271 million and fell short of our estimate of $292.8 million. This drop in sales was due to the divestiture of the Argentina business. Excluding this, organic sales rose 5%, supported by volume growth and favorable price mix. Segment-adjusted EBIT surged 20%, mainly due to higher volume and cost containment efforts, partly offset by the net impacts stemming from the divestiture of the Argentina business.

Financials

Clorox ended the quarter with cash and cash equivalents of $202 million, long-term debt of $2,481 million and stockholders’ equity of $492 million, including non-controlling interests of $164 million. 

Clorox recently announced an increase in its quarterly dividend, raising it to $1.22 per share from the previous $1.20. This 1.7% hike underscores the company's commitment to delivering consistent value to its shareholders through regular dividend increases.

Guidance

Management expects fiscal 2025 net sales to be flat to down 2% compared to the prior year. Organic sales are anticipated to increase 3-5%, excluding approximately 2 points of negative impact from the divestiture of the company's business in Argentina and about 3 points from the expected sale of the Better Health VMS business.

The gross margin is expected to improve by around 100 basis points, driven by comprehensive margin management efforts, though partially offset by cost inflation and higher trade promotional expenses. Selling and administrative expenses are forecasted to range between 15% and 16% of net sales, reflecting an estimated 150-basis point impact of strategic investments in digital capabilities and productivity enhancements.

Advertising and sales promotion spending is projected to be between 11% and 11.5% of net sales, demonstrating the company’s continued commitment to brand investment. 

Clorox envisions earnings in the range of $4.95-$5.20 per share, representing an increase of 120-131%. The company projected adjusted earnings in the band of $6.55-$6.80, reflecting a 6-10% increase. The adjusted earnings exclude an estimated 60 cents related to the long-term investment in digital capabilities and productivity enhancements, as well as a $1.00 loss on the Better Health VMS business divestiture in the first quarter.

Shares of this currently Zacks Rank #3 (Hold) company have declined 3% in the past three months against the industry’s rise of 2.7%.

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The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.1% and 12.4%, respectively, from the year-earlier levels.

Colgate-Palmolive, which manufactures and sells consumer products globally, currently carries a Zacks Rank #2 (Buy). CL delivered an earnings surprise of 4.8% in the trailing four quarters, on average.

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