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What’s behind Clorox’s Q3 Earnings Miss?

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Earnings missed expectations

Clorox (CLX) posted earnings of $1.44 per share, which increased about 5% on a YoY basis. However, EPS fell short of analysts’ estimate of $1.45. Excluding the third-quarter earnings miss, Clorox surpassed analysts’ expectations in the past nine quarters.

Higher net price realization, cost savings, and lower outstanding share count supported Clorox’s bottom line in the fiscal third quarter. However, manufacturing and logistics costs combined with inflation in commodities dragged the third-quarter earnings growth rate down.

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Clorox’s gross margin expanded by 60 basis points to 43.4%, reflecting a 240 basis-point contribution from higher pricing and a 170-basis-point support from cost savings. However, unfavorable currency rates and higher manufacturing and logistics costs had an adverse impact of 70 basis points and 190 basis points, respectively. Moreover, inflation in commodities had a negative impact of 50 basis points on the gross margin rate.

The profit margins of consumer packaged goods manufacturers are taking a hit from higher raw and packaging material costs. Also, increased transportation costs continue to hurt companies. The margins of the company’s peers including Procter & Gamble (PG), Church & Dwight (CHD), Colgate-Palmolive (CL), and Kimberly-Clark (KMB) have stayed low in the past several quarters. However, higher pricing and productivity and cost savings continue to support margins.

Outlook

Clorox’s bottom line is now expected to be in the range of $6.25–$6.35. Previously, management forecasted its earnings to be in the range of $6.20–$6.40. Higher commodity costs combined with increased manufacturing and logistics costs are expected to hurt the company’s margins, and in turn, its EPS. Also, tariffs are projected to hurt the full-year EPS by $0.05–$0.07.

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