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Clorox Posts Mixed Q4 Results, Weakness to Persist

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  • Clorox posted mixed fourth-quarter results.
  • Distribution losses and increased competitive activity impacted the company’s sales.
  • Persisting challenges will likely hurt near-term sales and margins.
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Clorox reports mixed results

On Thursday, Clorox (CLX) posted mixed fourth-quarter results. The company’s top line continued to take a hit due to weakness in the bags and wraps and charcoal business. The volumes stayed low, which reflected distribution losses. Moderate merchandising activity and wider price gaps with competitors also remained a drag. However, higher pricing supported the company’s net sales.

Management expects near-term sales to remain challenged, which reflects persisting weakness in the bags and wraps and charcoal business.

Despite weak sales, the EPS rose 13.3% and beat the consensus estimate due to lower taxes and margin expansion. However, increased spending on advertising and sales promotions remained a drag.

Key financial metrics

Clorox reported net revenues of $1.63 billion, which fell short of analysts’ estimate of $1.68 billion. The sales fell about 4%, which reflected a 3% decline in volumes. Meanwhile, currency volatility was a 2% drag. However, higher pricing continued to support the top line.

In comparison, peers had impressive top-line performances. Procter & Gamble (PG) posted stellar organic sales growth in the fourth quarter. Higher net selling prices and volumes growth drove the company’s top line. Kimberly-Clark’s (KMB) top line benefited from increased net pricing. As a result, the top line beat analysts’ estimate. Church & Dwight continued to post more than 4% growth in organic sales due to the higher pricing and volumes growth. Colgate-Palmolive’s top line also benefited from higher selling prices and volumes growth.

Clorox’s gross margin increased by 110 basis points to 45.1%, which reflected higher selling prices and cost-savings. However, higher trade spending and increased manufacturing and logistics costs remained a drag.

The company posted an EPS of $1.88, which beat analysts’ estimate of $1.83 and increased 13.3% year-over-year.

Weakness to persist in the near term

Clorox expects its net sales to stay flat or increase 2% in fiscal 2020. However, the revenues will likely remain low in the first half, which reflects weakness in the household segment. Distribution losses and competitive headwinds will likely hurt Clorox’s top line in the near term. Sales in the bags and wraps and charcoal business will likely stay low in the first half.

The gross margin will likely stay flat or decline. Meanwhile, the EPS will likely remain muted in the first half of fiscal 2020. Clorox expects the EPS to be $6.30–$6.50 in fiscal 2020 compared to $6.32 in fiscal 2019.

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