Will Innovation and Higher Pricing Drive Clorox Stock?



Top line to sustain momentum

Clorox (CLX) could continue to report healthy sales growth despite pressure on net sales from currency volatility. Management expects its top line to grow 2% to 4% in fiscal 2019 despite an anticipated 3% unfavorable impact from currency volatility.

Clorox’s net sales are projected to benefit from its Nutranext acquisition. Meanwhile, its organic sales are expected to gain from innovation-led products and higher pricing. Notably, Clorox’s top line growth guidance includes a 3% contribution from innovation.

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The organic sales of consumer packaged goods companies continue to benefit from innovation-driven products. Procter & Gamble’s recent improvement in organic sales reflects a significant contribution from premium innovation. Meanwhile, Church & Dwight’s (CHD) organic sales continue to benefit from the companies’ sustained focus on innovation.

Higher pricing to support earnings

Clorox’s bottom line is expected to experience healthy high single-digit growth in the coming quarters driven by higher pricing and a favorable mix. Meanwhile, cost-saving initiatives are expected to further support margins, and in turn, its EPS growth rate. However, we expect inflation in commodities and higher transportation costs to continue to hurt the company.

Clorox has outperformed consensus estimates in the past nine quarters despite heightened cost pressure, which is impressive.


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