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What’s behind Clorox’s Fiscal 3Q17 Earnings Beat?

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Dec. 4 2020, Updated 10:50 a.m. ET

EPS exceeded estimate

The Clorox Company (CLX) reported its fiscal 3Q17 results on May 3, 2017. Its EPS (earnings per share) of $1.31 exceeded analysts’ consensus estimate of $1.30 and rose 8.3% YoY (year-over-year) thanks to its strong sales.

This growth came in addition to the double-digit growth the company witnessed in the comparable quarter of the previous year.

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Sales support earnings growth

Clorox’s fiscal 3Q17 EPS were driven by higher sales supported by volume growth and higher pricing, coupled with cost savings from the company’s productivity measures. 

The company’s bottom line in fiscal 3Q17 also benefited from a lower effective tax rate of 30%, compared to 33% in fiscal 3Q16. The lower effective tax rate was the result of excess tax benefits from stock-based compensation.

However, higher commodity costs, increased manufacturing and logistics costs, an unfavorable product mix, and increased trade promotion investments remained a drag in the third quarter.

Most of the company’s peers surpassed analysts’ estimates in their most recent quarters, but what sets Clorox apart is that its EPS beat came on the back of higher sales and volumes in the United States (SPY). In contrast, consumer product companies are banking on reducing their costs to drive bottom line growth, as they’re struggling to lift sales.

For instance, Kimberly-Clark (KMB), which reported its 1Q17 results on April 24, 2017, exceeded analysts’ consensus estimate on the bottom line front, reflecting productivity and cost-saving initiatives. Meanwhile, Colgate-Palmolive’s (CL) 1Q17 adjusted EPS came in $0.01 ahead of analysts’ estimate driven by lower costs and productivity savings.

Outlook

Going forward, Clorox’s management expects its EPS in fiscal 2017 to be in the range of $5.25–$5.35. Earlier, the company expected its bottom line to be in the range of $5.23–$5.38. Clorox’s strong sales supported by its innovative products, its RenewLife acquisition, its higher pricing, and its productivity savings from the Go Lean program are expected to boost its EPS growth.

However, higher manufacturing and logistics costs, an unfavorable product mix, and increased trade promotion investments to support innovation are likely to restrict the company’s bottom line growth.

We’ll take a look at Clorox’s fiscal 3Q17 sales in the next part of the series.

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