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Clorox Up 15% Year to Date: Industry Woes to Limit Growth?

Zacks

Consumer goods behemoth, The Clorox Company CLX is riding on its strategy for 2020, impressive earnings history and other growth initiatives. These factors have helped the company gain 14.6% so far this year, outperforming the Zacks Consumer Staples sector’s 12.5% growth. However, the company remains vulnerable to the threats of rising commodity costs and stiff industry competition. Will these hurdles limit Clorox’s growth? Let’s delve deeper and find out.



Impressive Earnings Surprise History Despite a Tough Scenario

Clorox’s fourth-quarter fiscal 2017 results marked its third straight quarter of earnings beat, while sales reverted to its positive surprise track after a miss in the preceding quarter. Further, both the top and bottom lines grew year over year, with sales growth witnessed in each segment. Even in the face of a challenging retail environment, Clorox managed to deliver a robust show, as earnings gained from strong sales and cost savings, whereas sales were fueled by higher volumes, better International pricing and benefits from RenewLife. The company’s fiscal 2017 performance also remained robust with solid top and bottom line growth year over year.

Further, management remains encouraged with its International operations, and expects pricing and cost savings to continue driving results. That said, the company expects fiscal 2018 to represent another year of strong earnings and sales growth. For fiscal 2018, Clorox expects sales to grow in a range of 2-4% and earnings from continuing operations to rise 3-7% year over year to $5.52-$5.72 per share.

Clorox Company (The) Price and Consensus

Clorox Company (The) Price and Consensus | Clorox Company (The) Quote


Strategy for 2020 – A Major Growth Driver

Much of the credit for Clorox’s past performance can be attributed to its focus on the 2020 strategy, which is directed toward improvement of categories and overall market share. The whole plan is aimed at achieving certain long-term targets, including growing net sales by 3-5%, increasing EBIT margin by 25-50 bps and generating free cash flow of 10-12% of sales, all on a yearly basis. Clorox intends to achieve these goals through key accelerators like investment in brands, development of e-commerce and technological advancements.

Focus on Brand Management Bodes Well

Clorox’s approach to brand management allows each of its brands to develop further through rigorous research and development, marketing strategies, financial control and operating leverage. Clorox’s focus on boosting sales through brands is well evident from its constant innovations and marketing strategies. Incidentally, these efforts fueled sales and volume growth of 3% each, in the fiscal fourth quarter. Given these factors, strength of many of its brands along with opportunities in distribution, we believe that the company is set for significant long-term growth.

High Commodity Costs & Stiff Competition Weigh Upon Estimates

Well, management stated that competition has intensified — especially across core categories like litter and trash bags — which remains a threat to margins. Further, the company remains troubled by inflationary pressure and escalating commodity expenses. Apart from this, unfavorable currency translations, a tough pricing environment and difficult economic conditions in the International region remain a worry. Management also expects softness in Argentina to linger for a while.

It looks like these factors weighed upon analysts’ sentiments. Evidently, the Zacks Consensus Estimate for the first quarter and fiscal 2018 have declined 2.8% to $1.40 and 0.7% to $5.65, over the past 60 days.

As these factors are likely to impede Clorox’s growth, it remains to be seen if this Zacks Rank #3 (Hold) company’s focus on its 2020 strategy and continued innovations can maintain its momentum.

Can’s get Over Consumer Staples? Check These 3 Trending Picks

Unilever PLC UL, which has gained about 50% so far this year, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Unilever N.V. UN, with a Zacks Rank #2, is up 51% year to date.

The Chefs' Warehouse, Inc. CHEF, with a Zacks Rank #2, has a long-term earnings per share growth rate of 19%.

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