It has been about a month since the last earnings report for The Clorox Company CLX. Shares have added about 2.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Clorox released fourth-quarter fiscal 2017 results. Quarterly earnings from continuing operations of $1.53 per share jumped 21% year over year and surpassed the Zacks Consensus Estimate of $1.49. Results gained from solid sales and cost-savings, somewhat countered by increase in manufacturing and logistic expenses.
Net sales of $1,647 million advanced nearly 3% year over year, also coming ahead of the Zacks Consensus Estimate of $1,640.9 million. During the quarter, gains from 3% volume growth, higher pricing at the International business and benefits from RenewLife (acquired in May 2016) were somewhat negated by unfavorable mix.
Clorox’s gross margin expanded 30 basis points (bps) to 45.7% in the quarter, thanks to efficient cost savings and improved pricing, somewhat offset by increase in manufacturing and logistics expenses and greater commodity expenses.
Revenue by Segment
Sales in the Cleaning segment improved 2% to $502 million, with a 4% rise in volumes. Volumes mainly gained from the strength in Home Care, particularly Clorox disinfecting wipes, along with strong volumes at the Professional Products’ cleaning brands.
Household sales grew 4% to $632 million, with volumes rising 5%. Volumes were mainly aided by the RenewLife acquisition, benefits from Cat Litter and greater shipments from Glad premium trash bags.
Sales at the Lifestyle segment rose 2% to $258 million, while volumes dipped 1% due to reduced shipments from KC Masterpiece barbeque sauces, partly compensated by strength in Burt's Bees Natural Personal Care.
In the International business segment, sales grew 5% to $255 million. Further, volumes inched up 1% on the back of strength in Asia and Europe. This was partially negated by softness in certain Latin American countries, especially Argentina.
Fiscal 2017: At a Glance
Fiscal 2017 earnings from continuing operations of $5.35 per share jumped 9% year over year and came ahead of the Zacks Consensus Estimate of $5.30. Net sales of $5,973 million advanced nearly 4% year over year, beating our estimate of $5,967 million.
Clorox ended the year with cash and cash equivalents of $418 million, and long-term debt of $1,391 million. In fiscal 2017, the company generated $871 million of net cash from continuing operations, while it deployed $231 million as capital expenditure. Thus, the adjusted free cash flow for fiscal 2017 amounted to$640 million.
Clorox remains impressed with its fourth-quarter outcome, wherein it witnessed sales growth in each segment. Further, the company’s fiscal 2017 performance remained robust with both the top and the bottom line growing year over year. The company is also pleased with the progress at its International operations. While the retail landscape is expected to be more competitive in fiscal 2018, the company’s focus on its 2020 strategy and continued investments in innovating products and brands, is likely to keep it going. All said, management expects fiscal 2018 to represent another year of strong earnings and sales growth.
Considering all factors, the company issued its fiscal 2018 outlook. The company expects fiscal 2018 sales growth in a range of 2–4%, with about three points contribution from innovations, and nearly 1 point gain from pricing. This is expected to be partly offset by an adverse currency impact of 1 point.
Gross margin is estimated to expand slightly on the back of better pricing and expected gains from cost savings. However, this will somewhat countered by higher commodity costs and greater manufacturing and logistic expenses. SG&A expenses, as a percentage of sales, is anticipated to be lesser than 14% in fiscal 2018. This also falls in line with Clorox’s long-term goal.
Consequently, the company envisions fiscal 2018 earnings from continuing operations to range from $5.52–$5.72 per share. This reflects year-over-year growth of 3–7%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.
At this time, Clorox's stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an D. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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