Clorox Beats Peers on Margins Front
Cost savings boost margins
Clorox’s (CLX) margins were affected by inflation in commodity costs and higher manufacturing and logistics expenses, which more than offset the benefits from increased sales and cost savings. However, during the last reported quarter, the company’s price increases, higher volumes, operational efficiencies, and cost-savings led to higher gross and EBIT margins, which expanded 30 basis points and 220 basis points, respectively. Management stated that the fiscal 4Q17 gross margin was at its highest in eight years.
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Peers lagged Clorox
In comparison, Kimberly-Clark’s (KMB) and Procter & Gamble’s (PG) margins were adversely impacted by lower selling prices and increased input costs. Plus, soft sales and increased competition further hurt their performances. Meanwhile, Church & Dwight’s (CHD) margins took a hit from the planned increase in promotional spending.
However, Colgate-Palmolive’s (CL) margins expanded during the last reported quarter, reflecting higher pricing and cost savings, which more than offset the negatives stemming from lower volumes and inflation in raw material prices.
Clorox’s management remains upbeat on the margins front and expects improvement in fiscal 2018. The company’s expected rise in volumes, its cost and productivity savings initiatives, its Go Lean Strategy in the international segment, and operational efficiencies are likely to drive the margins growth in coming quarters.
However, an unfavorable mix, inflation in raw material costs, and higher expenses related to manufacturing and logistics are likely to remain a drag.