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Clorox’s International Segment Dips Due to Weakening Currencies

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International segment sales in fiscal 3Q16

Clorox’s (CLX) International segment consists of products sold outside the US. Products within this segment include all Cleaning, Household, and Lifestyle products. Apart from the other segments’ brands, Clorox’s International segment’s brands include PinoLuz, Limpido, Bon Bril, Agua Jane, and Chux.

The International segment’s sales fell by 9.4% to $0.2 billion in fiscal 3Q16. The decrease was primarily due to the impact of unfavorable foreign currency exchange rates, of which more than half was driven by the recent devaluation of the Argentine peso. This was partially offset by the benefits of price increases. On a currency-neutral basis, the International segment’s revenue increased by 9%.

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Operating income and volume

The International segment’s operating income fell by 35.3% in fiscal 3Q16. The decrease was primarily due to the impact of lower sales, as well as higher advertising and sales promotion spending to support select initiatives for products.

Inflationary pressure on manufacturing and logistics costs also pressured the segment’s operating income. However, the International segment’s volume grew, driven by gains in Europe, Mexico, and Canada.

Headwinds remain a challenge

Foreign exchange headwinds remain a challenge for Clorox and other multinational companies such as Procter & Gamble (PG), Unilever (UL), and Kimberly-Clark (KMB). However, Clorox continues to focus on its “Go Lean” strategy, which is focused on driving margin improvement and driving value in four main areas:

  • pricing
  • cost-savings
  • right-sizing infrastructure
  • optimizing demand

Stepping up investments

To fuel growth for the International segment, Clorox (CLX) is stepping up investments in its laundry additives and Burt’s Bees business in markets like Latin America, the Middle East, Canada, Australia, the UK, Chile, and Mexico. For example, Clorox is planning to launch Clorox clothes color-safe laundry additive innovation in a variety of international markets.

In the coming parts, will we analyze Clorox’s margins and profitability, as well as its valuation multiple compared to its peers. CLX comprises 0.1% of the iShares Core US Growth ETF (IUSG).[1. Updated on May 31, 2016]

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