Clorox is a 98 year-old manufacturer and marketer of consumer and institutional products. The products are varied including bleach and cleaning products, natural cleaning and laundry products, auto-care products, dressings and sauces, water-filtration systems wraps and containers, and natural personal care products. The firm sells its products primarily through mass merchandisers, grocery stores and other retail outlets.
As it can be seen, the revenue has kept increasing over the years at the very steady pace. The four items of revenue, profit, operating income and net income are quite consistent over the years. Only in the year of 2005, the sudden rise in the net income was due to the gain on exchange between the company and Henkel transaction. That was once off event and cannot be categorized as continuing income.
The net income over the years is in increasing trend, and the gap between operating cash flows and the free cash flows has been quite in line with each other. The drops in operating cash flows in 2006 were mainly because the settlement of income tax contingency. The average free cash flow for Clorox for the last 10 years stays at $581 millions.
Balance sheet snapshot
|Cash and cash equivalents||153|
|Total current assets||1,204|
|Net property, plant and equipment||1,006|
|Total current liabilities||1,232|
|Accumulated other comprehensive income||(307)|
|Total stockholders' equity||(82)|
Looking at the balance sheet snapshot of Clorox, we can see the negative equity with large amount of long-term debts, with huge good will and intangibles assets. However, the negative equity is due to the treasury stocks, meaning that the company has been buying back a lot of its own stocks. Over the last 10 years, the number of shares outstanding has been reducing from 239 millions to only 140 millions currently.
With $10 billion bid, Icahn has valued Clorox at 13.1 times cash flows and 29.5 P/E. Icahn has said in the interview that any consumers company would be crazy not to buy Clorox, and companies like Unilever (UN) and Procter and Gamble (PG), or Colgate, can get the great synergies and get the free cash flow for free.
The interview of billionaire Icahn on Clorox is here
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About the author:
Anh HoangMoney manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam