Why is Clorox (CLX) down 8.2% since its last earnings report?

It has been about a month since Clorox (CLX) last reported earnings. Shares have lost about 8.2% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Clorox due for a breakout? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Clorox’s third-quarter earnings beat estimates, while revenues fell YoY

Clorox reported third-quarter fiscal 2024 earnings, where earnings beat the Zacks Consensus Estimate and improved year over year. Significant gains from pricing actions and ongoing cost-saving initiatives helped drive strong results. The results also benefited from solid innovation potential and digital transformation. CLX is implementing its streamlined operating model aimed at improving efficiency.

Third quarter update

Adjusted earnings per share of $1.71 increased 13% year-over-year and surpassed the Zacks Consensus Estimate of $1.33. Financial results derived from increased margins and pricing gains and cost savings, offset to some extent by unfavorable currency, as well as lower volumes and increased production and logistics costs.

Adjusted earnings exclude one-time costs related to the recent cyberattack incident and ongoing digital and productivity improvements of 16 cents and 19 cents, respectively. CLX’s pricing and continued gypsum conservation initiatives contributed to its better-than-expected performance.

On a GAAP basis, the company reported a loss of 41 cents per share, down from a loss of $1.71 per share reported a year ago.

Net sales of $1.81 billion declined 5% from the year-ago quarter and surpassed the Zacks Consensus Estimate of $1.88 billion. Organically, sales increased by 2% year over year. The downside was mainly a decline in volumes resulting from temporary distribution losses resulting from the widespread disruption caused by the cyber attack, as well as unfavorable foreign exchange rates, partially offset by a favorable pricing mix.

Gross margin increased 40 basis points year-over-year to 42.2% in the fiscal third quarter. Gains from pricing and savings initiatives were offset by the impact of an unfavorable currency and increased production and logistics costs. We expect a gross decline of 50 basis points in the fiscal third quarter.

Segmentation discussion

Health and Wellness segment sales declined 6% to $609 million, higher than our estimate of $659.9 million. This was due to a decline in volume of 4 points and a decline of two points due to an unfavorable price mix.

Household segment sales declined 4% to $526 million, below our estimate of $594 million. The downside was three points in volume and one point from an unfavorable price combination. Lower sales were recorded in each of the segment’s activities, including Bags and Scarves and Cat Litter, with the exception of Grilling.

Lifestyle sales declined 11% year-over-year to $315 million and topped our estimate of $360.1 million. This was mainly due to a nine point decline in volumes and a two point unfavorable price mix. Three segment areas – Food, Natural Personal Care and Water Filtration – recorded sales declines.

In the international segment, sales of $310 million increased 2% year over year and exceeded our estimate of $228.8 million. This was driven by a one-point increase in volume and a 45-point gain from a favorable price mix, offset by a 44-point impact from unfavorable currency. The segment’s organic sales improved by 48%.

The story continues

Financial

Clorox ended fiscal third quarter 2024 with cash and cash equivalents of $219 million and long-term debt of $2.5 billion. Year-to-date, the company’s net cash generated from operations was $355 million, compared to $728 million in the year-ago period, a decline of 51%.

Budget guidance for 2024

Management continues to anticipate fiscal year 2024 net sales to decline by a single-digit year-over-year decline. However, management expects sales to be at the lower end of the range, reflecting the impact of the divestment of the Argentina business and third quarter results. The sales guidelines assume three points of unfavorable exchange rate. Organic sales are still expected to grow, albeit by single digits at the lower end of the range.

Gross margin is expected to expand by approximately 275 basis points, reflecting gains from lower production cost headwinds and modest benefits from leaving Argentina. This reflects the cumulative benefits of pricing, cost savings and supply chain optimization activities, partially offset by supply chain inflation and the impact of a cyberattack.

Selling and administrative expenses are likely to be 16% to 17% of net sales, including a 2.5 point impact of investments to enhance digital capabilities, implementation of a streamlined operating model and expenses resulting from a cyberattack. Advertising and sales promotion expenses are expected to be over 11% of net sales, reflecting the impact of lower sales and the exit from Argentina. The company’s effective tax rate will probably be around 31%, compared to previous expectations of 22-23%.

The company expects GAAP earnings of $3.06-$3.26 per share in fiscal 2024. Guidance suggests year-over-year growth of 155-172%.

How have estimates changed since then?

Investors have witnessed an upward trend in estimate revisions over the last month.

VGM results

Currently, Clorox has a nice B growth score, a rating with the same momentum score. Plotting a somewhat similar path, the stock received a grade of C on the value side, ranking in the middle 20% for this investment strategy.

Overall, the stock has a composite VGM score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, Clorox carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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