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Clorox: Disappointing Q3 Results Missed the Estimates

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May. 1 2019, Published 8:08 a.m. ET

Key takeaways

Clorox (CLX) posted lower-than-expected third-quarter results on May 1. The company’s top line for the three months ending March 31 improved on a YoY (year-over-year) basis but fell short of analysts’ expectation. Currency headwinds and weakness in bags and wraps limited the growth rate.

As expected, more competitive activity and lower volumes due to price increases had a negative impact on bag and wrap sales. However, the benefits from acquisitions, innovation, and higher pricing supported the company’s net sales growth.

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Currency volatility also impacted the top lines of other major consumer packaged goods companies including Procter & Gamble (PG), Kimberly-Clark (KMB), and Colgate-Palmolive (CL). However, a higher net price realization supported organic sales growth.

Clorox’s bottom line returned to the growth path due to the gross margin expansion driven by higher pricing and cost savings. However, the earnings fell short of analysts’ estimate, which reflected unfavorable foreign currency exchange rates and increased manufacturing and logistics costs.

Clorox’s management narrowed its fiscal sales growth expectation, which indicates persisting challenges in coming quarters.

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Third-quarter financials

Clorox posted net sales of $1.55 billion, which increased 2.2% on a YoY basis but fell short of analysts’ estimate of $1.57 billion. The company’s Nutranext acquisition added 3% to the company’s top-line growth. The pricing also supported Clorox’s sales. However, currency volatility had a negative impact on Clorox’s sales by 3%.

The gross margin expanded by 60 basis points, which reflected higher net price realization and cost savings. However, increased manufacturing and logistics costs continued to hurt.

Clorox posted an EPS of $1.44, which increased 5.1% on a YoY basis but missed analysts’ estimate of $1.45. Higher pricing and a lower outstanding share count drove the YoY bottom-line growth. However, unfavorable currency rates and higher commodity costs limited the bottom-line growth rate.

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