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Clorox Disappoints on Outlook

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What drove Clorox’s growth in fiscal 1Q18?

Clorox (CLX) continued its strong top-line and bottom-line performances in fiscal 1Q18. The company’s industry-leading brands, backed by innovation and efficient marketing, helped it surpass analysts’ sales estimates. Increased pricing, higher cost-savings, and a lower tax rate supported its bottom-line growth rate. The company’s volumes remained strong amid soft industry trends and improved 4% during the reported quarter. However, an increase in input costs, higher manufacturing and logistics costs, and an unfavorable mix remained a drag.

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Most of the company’s peers, including Procter & Gamble (PG), Kimberly-Clark (KMB), Colgate-Palmolive (CL), and Church & Dwight (CHD), struggled on the margins front during their last reported quarters. However, Clorox’s gross margin expanded 50 basis points in fiscal 1Q18, reflecting the benefits of increased volumes and pricing, coupled with higher cost savings. However, as we’ve already seen, inflation in commodity prices and increased logistics and manufacturing costs remained a drag. The company’s EBIT (earnings before interest and tax) margins rose 10 basis points, reflecting lower SG&A (selling, general, and administrative) expenses.

Outlook disappoints

Despite its strong quarterly performance, Clorox lowered its sales and EPS (earnings per share) guidance. It now expects sales to increase 1%–3%, down from its earlier growth forecast of 2%–4%. Clorox’s divestiture of its Aplicare business is likely to hurt its top-line growth.

The company’s fiscal 2Q18 and 3Q18 margins are likely to remain pressured due to inflation in commodity prices, exacerbated further by the recent hurricanes. Clorox projects its fiscal 2018 EPS to be $5.47–$5.67. Earlier, the company expected its EPS to be $5.52–$5.72.

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