Clorox Co. (CLX, Financial) has been performing remarkably well, providing strong quarterly performances and increasing dividends every year since 1977. This consistent stock has good momentum and will grow considerably with time. It is a leading multinational manufacturer and marketer of consumer and professional products with about 7,700 employees worldwide and fiscal year 2015 sales of $5.7 billion.
The California-based company sells its products through mass retail outlets, ecommerce channels, distributors and medical supply providers. Clorox operates through four segments: Cleaning, which consists of laundry, home care and professional products; Household, which consists of bags and wraps, charcoal and cat litter; Lifestyle, such as water filtration products and natural personal care, and International, which consists of products sold outside the U.S.
Clorox reported a strong first quarter. Continued productivity gains and robust cost savings drove another quarter of significant margin expansion.
Strong first quarter
The company reported sales growth of 3% and a 20% increase in diluted net earnings per share (EPS) from continuing operations for its first quarter, which ended Sept. 30, 2015. On a currency-neutral basis, first-quarter sales grew 6%.
Earnings from continuing operations were $173 million, or $1.32 diluted EPS ($145 million, or $1.10 diluted EPS, in the prior year quarter). First-quarter diluted EPS results reflect higher sales and gross margin expansion. First quarter diluted EPS also reflects a comparison to a one-time benefit of 5 cents in the year-ago quarter related to a change in the company's long-term disability plan.
The company's first-quarter gross margin increased 220 basis points to 45% from 42.8% in the year-ago quarter, driven primarily by the benefits of cost savings; higher sales, which reflect strong volume growth and price increases, and favorable commodity costs. These factors were partially offset by higher manufacturing and logistics costs.
First-quarter net cash provided by continuing operations was $135 million, which was $234 million in the prior year quarter.
Segmentwise results
Cleaning
(Laundry, home care, professional products)
- 5% volume growth.
- 6% sales growth.
- 20% pretax earnings growth.
Household
(Bags and wraps, charcoal, cat litter)
- 1% volume growth.
- 5% sales growth.
- 58% pretax earnings growth.
Lifestyle
(Dressings and sauces, water filtration, natural personal care)
- 8% volume growth.
- 7% sales growth.
- 5% pretax earnings growth.
International
(All sales outside of the U.S.)
- Flat volume.
- 8% sales decrease (5% growth, currency-neutral basis).
- 23% pretax earnings growth.
Fiscal year 2016 outlook
- Flat to 1% sales growth (3% to 4% growth, currency-neutral basis).
- 25 basis points to 50 basis points of EBIT margin expansion.
- $4.68 to $4.83 diluted EPS range.
(Source: Company’s website)
Strong attributes of the quarter
- Profitable growth in market share.
- The company’s strategy continues to drive profitable growth.
- Strong sales increases in all U.S. businesses.
- Margin expansion in each of the business segments.
- Cost savings.
- Continued productivity gains.
Positive attributes of the company
- The company is investing in incremental demand-building programs to reinforce the value proposition of its brands.
- Increased brand investment.
- Product innovation.
- Category growth.
- The company’s strong cost-savings program has delivered about $100 million or more in annual savings since 2003.
- It has delivered 13% of FCF as a percentage of sales over the last 10 years.
On a concluding note
The company has been broadly recognized for its corporate responsibility efforts, including, most recently, two U.S. EPA Climate Leadership Awards for Excellence in Greenhouse Gas Management and inclusion among the top 40 companies on the 2015 Newsweek Green Rankings and CR magazine's 100 Best Corporate Citizens 2015 list.
Overall, Clorox is a solid company with big share brands in the mid-sized categories, and more than 80% of its portfolio has a No. 1 or No. 2 share in the market. It has a strong position in categories with private label exposure, and its approach to innovation is also broad based. Clorox has repurchased nearly 40% of shares outstanding over the last 10 years. The company has enough opportunity to grow in the future with its innovative products, strong sales and a healthy dividend track record. Further, Clorox believes that the forex headwinds are likely to lessen over the long term, which will help to increase its growth.
Disclosure: I do not hold any position in the company
