Clorox posts Q1 net earnings of US$130M compared with US$216M a year ago, due in part to higher cost of goods, largely offset by benefit of price increases, higher volume, cost savings; net sales rose to US$1.31B from US$1.27B in year-ago period

Michelle Rivera

OAKLAND, California , November 2, 2011 (press release) – The Clorox Company (NYSE: CLX) today announced solid results for its first quarter, which ended Sept. 30. Clorox reported 3 percent sales growth, driven by product innovation across the company's portfolio and the benefit of price increases.

"I'm pleased with our start to the fiscal year," said Chairman and CEO Don Knauss. "We delivered our third consecutive quarter of volume and sales growth, with diluted EPS from continuing operations equal to the year-ago quarter. Although our U.S. categories are still in slight decline, they are improving. Importantly, we continue to grow U.S. market shares."

All results in this press release are on a continuing operations basis unless otherwise stated, and some results are reported on a non-GAAP basis. See "Non-GAAP Financial Information" below and the tables toward the end of this press release for more information and a reconciliation of key first-quarter results.

Fiscal First-Quarter Results
Following is a summary of key first-quarter results. All comparisons are with the first quarter of fiscal year 2011, unless otherwise stated.

* 98 cents diluted earnings per share (EPS)
* 2% volume growth
* 3% sales growth

Clorox reported first-quarter earnings from continuing operations of $130 million, or 98 cents diluted EPS. This compares with $140 million from continuing operations, or 98 cents diluted EPS, in the year-ago quarter. Current quarter results reflected higher cost of goods, largely offset by the benefit of price increases, higher volume and cost savings. Current quarter earnings also reflected advisory fees of $12 million, or 6 cents diluted EPS, related to a withdrawn proxy contest.

Total company pretax earnings from continuing operations decreased 7 percent in the quarter, while segment pretax earnings from continuing operations decreased 10 percent. The pretax earnings decrease in the segments was partially offset at the total company level (see "Key Segment Results" below and the "Reportable Segment Information" tables later in the press release for details).

Volume for the first quarter of fiscal 2012 grew 2 percent, driven by product innovation. Sales grew 3 percent, with increases in three of the company's four reportable segments. The sales benefit of price increases was partially offset by unfavorable mix.

Gross margin decreased 250 basis points to 41.8 percent from 44.3 percent in the year-ago quarter. The decrease in the current quarter gross margin was primarily driven by higher commodity costs, manufacturing and logistics costs, and product mix. These factors were partially offset by the benefit of price increases and strong cost savings.

"As expected, commodity cost increases and other inflationary pressures continue to pressure our margins," said Senior Vice President and Chief Financial Officer Elect Steve Robb. "We're taking the right steps to offset these impacts for the year. We anticipate the combined benefit of cost savings and broad price increases across our global portfolio will enable us to hold gross margin flat for the fiscal year, with year-over-year improvement beginning in the second quarter."

The effective tax rate of 30.5 percent for the current quarter was about flat versus the year-ago quarter. The rates for both periods reflect the benefit of certain tax settlements.

Cash provided by continuing operations increased to $131 million from $126 million in the year-ago quarter. The year-over-year increase was primarily due to a discretionary pension contribution of $15 million in the year-ago quarter that did not recur in the current quarter, partially offset by lower earnings in the current quarter. For the full fiscal year, Clorox continues to anticipate free cash flow of about 10 percent of sales, within its targeted range of 10-12 percent. The company defines free cash flow as cash provided by continuing operations less capital expenditures.

During the first quarter, Clorox repurchased 129,000 shares of the company's common stock at a cost of approximately $9 million.

Key Segment Results
Following is a summary of key first-quarter results by reportable segment. All comparisons are with the first quarter of fiscal year 2011, unless otherwise stated.

Cleaning
(Laundry, home care, away from home)

* 1% volume decrease
* 2% sales decrease
* 11% pretax earnings decrease

Home Care grew volume behind higher shipments of Clorox disinfecting products driven by cold-and-flu season merchandising, and new product line extensions. Home Care gains were more than offset by lower shipments in the Laundry business due to continuing weak category trends and recent price increases. The variance between changes in volume and sales was primarily due to product mix, partially offset by the benefit of price increases. Pretax earnings reflected higher commodity costs, higher manufacturing and logistics costs, and product mix. These factors were partially offset by cost savings and lower advertising and sales promotion expenses.

Household
(Bags and wraps, charcoal, cat litter)

* 5% volume growth
* 3% sales growth
* 21% pretax earnings decrease

Volume growth for the segment was primarily driven by higher shipments in the Cat Litter business behind new product innovation, and strong shipment growth on Kingsford® charcoal due to aggressive large-size product merchandising by a number of major retailers. Glad® volume was down slightly, with strong volume gains on the Glad® food storage line offset by base trash bags declines driven by price increases. The variance between volume and sales was primarily due to higher trade-promotion spending and product mix, partially offset by the benefit of price increases. Pretax earnings reflected higher commodity costs, higher manufacturing and logistics, and unfavorable product mix. These factors were partially offset by higher sales and cost savings.

Lifestyle
(Dressings and sauces, water filtration, global natural personal care)

* 6% volume growth
* 6% sales growth
* 7% pretax earnings decrease

Higher volume in the segment was driven by shipment growth in all three business units. In particular, the Burt's Bees® business delivered double-digit volume growth, driven by new products and expansion in international markets. The Brita® business grew volume behind the launch of the new Brita® on-the-go bottle, which is ahead of expectations. Finally, food volume was up due to base brand growth and new products. Sales growth reflected the benefit of price increases, offset by product mix and higher trade-promotion spending. The decline in pretax earnings reflected higher commodity costs and higher advertising and sales promotion behind new product launches. These factors were partially offset by higher sales.

International
(All countries outside of the U.S., excluding natural personal care)

* 3% volume growth
* 9% sales growth
* 3% pretax earnings growth

International volume increased primarily due to growth in the company's well-established Argentina business, the expansion of its Glad® business in China, and distribution gains in a number of small emerging countries in Asia and the Middle East. These results were partially offset by lower shipments of Glad® products in Canada due to category softness. The variance between volume and sales growth reflects the benefit of price increases and favorable foreign exchange, partially offset by mix. Contributing to pretax earnings growth were sales growth and favorable foreign exchange rates. These factors were partially offset by higher manufacturing and logistics costs, higher commodity costs and selling and administrative expenses associated with investments in information systems infrastructure.

Clorox Confirms Fiscal 2012 Sales, Gross Margin and EPS Outlook
Clorox confirmed its previous financial outlook for fiscal year 2012 continuing operations:

* 1-3 percent sales growth
* Gross margin about flat
* Diluted EPS in the range of $4.00-$4.10, including incremental IT systems and facility investments in the range of 18-20 cents diluted EPS

Despite unfavorable foreign exchange and product mix versus prior assumptions, Clorox continues to anticipate sales growth of 1-3 percent for fiscal year 2012.

The company continues to expect gross margin to be about flat versus the prior fiscal year. Although mix and inflationary pressures were greater than anticipated in the first quarter, Clorox continues to expect year-over-year commodity cost increases in the range of $140 million to $150 million, as well as $40 million to $50 million of inflationary pressure in manufacturing and logistics expenses. The company continues to anticipate inflationary pressures will be offset by price increases, as well as cost savings in the range of $90 million to $100 million.

The company continues to anticipate investing $36 million to $40 million, primarily reflected in selling and administrative expense, for investments in global information technology systems and research and development facilities, and to expand the Burt's Bees international network. In addition, selling and administrative expenses are expected to reflect higher incentive compensation expense than in the prior fiscal year, and advisory costs in the first quarter related to the withdrawn proxy contest. Selling and administrative expense in fiscal year 2012 is expected to be approximately 15 percent of sales.

The company's fiscal year tax rate is now expected to be 32-33 percent, reflecting the first quarter tax settlement and anticipated benefits during the fiscal year.

The company currently plans to utilize the remaining $150 million of proceeds from the sale of its Auto Care businesses to repurchase shares, likely in the second half of the fiscal year.

For More Detailed Financial Information
Visit the Investors: Financial Results section of the company's website at www.TheCloroxCompany.com for the following:

* Supplemental volume and sales growth information
* Supplemental gross margin driver information
* Reconciliation of certain non-GAAP financial information, including earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA)
* Supplemental balance sheet and cash flow information
* Supplemental price-change information

Note: Percentage and basis-point changes noted in this news release are calculated based on rounded numbers. Supplemental materials are available in the Investors: Financial Results section of the company's website at www.TheCloroxCompany.com.

Today's Webcast
Today at 10:30 a.m. Pacific time (1:30 p.m. Eastern time), Clorox will host a live audio webcast of a discussion with the investment community regarding the company's first-quarter results. The webcast can be accessed at http://investors.thecloroxcompany.com. Following a live discussion, a replay of the webcast will be archived for one week on the company's website.

The Clorox Company
The Clorox Company is a leading manufacturer and marketer of consumer products with 8,100 employees and fiscal year 2011 revenues of $5.2 billion. Clorox markets some of consumers' most trusted and recognized brand names, including its namesake bleach and cleaning products, Green Works® naturally derived home care products, Pine-Sol® cleaners, Poett® home care products, Fresh Step® cat litter, Kingsford® charcoal, Hidden Valley® and K C Masterpiece® dressings and sauces, Brita® water-filtration products, Glad® bags, wraps and containers, and Burt's Bees® natural personal care products. Nearly 90 percent of Clorox Company brands hold the No. 1 or No. 2 market share positions in their categories. The company's products are manufactured in more than two dozen countries and marketed in more than 100 countries. Clorox is committed to making a positive difference in the communities where its employees work and live. Founded in 1980, The Clorox Company Foundation has awarded cash grants totaling more than $84 million to nonprofit organizations, schools and colleges. In fiscal year 2011 alone, the foundation awarded $4 million in cash grants, and Clorox made product donations valued at $13 million. For more information about Clorox, visit www.TheCloroxCompany.com.

Industry Intelligence Editor's Note: In an omitted table, Clorox reported Q1 2011 net earnings of US$130 million and Q1 2010 net earnings of US$216 million. The company also reported net sales of US$1.31 billion in Q1 2011 and net sales of US$1.27 billion in Q1 2010.

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