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Analyzing Clorox’s Performance in the Fourth Fiscal Quarter

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Fourth fiscal quarter summary

Clorox (CLX) reported net sales of $1.7 billion, which fell short of analysts’ expectation. However, the net sales increased 2.7% YoY (year-over-year), which reflects benefits from its Nutranext acquisition, improved volumes, and higher pricing. The devaluation of the Argentine peso, the divestiture of the Aplicare business, and an unfavorable mix remained a drag.

In comparison, Church & Dwight (CHD) outperformed Clorox and other major consumer packaged goods companies like Kimberly-Clark (KMB), Colgate-Palmolive (CL), and Procter & Gamble (PG) with its net sales growth rate. Church & Dwight’s net sales rose 14.5% during the second quarter due to benefits from acquisitions and growing organic sales.

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Regarding the bottom line, Clorox’s earnings benefited from a lower effective tax rate—similar to its peers. The company reported earnings of $1.66 in the fourth fiscal quarter including the dilution of $0.08 from the Nutranext acquisition. Clorox’s fourth fiscal quarter earnings surpassed analysts’ estimate. However, the margins were low and pressured the bottom line.

Clorox’s gross margin contracted by 170 basis points, which reflects a negative impact of 130 basis points and 100 basis points from higher commodities and logistics costs, respectively. Cost savings contributed 120 basis points to the gross margin rate, while higher pricing added 50 basis points. However, the benefits didn’t offset the negatives.

Outlook

Clorox’s net sales are projected to grow 2.0%–4.0% in fiscal 2019 due to innovation (+3.0%) and the Nutranext acquisition (+2.5%). Unfavorable currency rates are expected to hurt the top line growth rate by 2.0%. An unfavorable mix is expected to remain a drag.

Clorox’s management expects gross margins to stay flat or improve modestly in fiscal 2019 due to cost savings and increased pricing. Meanwhile, the EPS is projected to be $6.32–$6.52.

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