Clorox posts fiscal Q3 net income of US$132M, versus US$151M a year ago, on higher raw materials, manufacturing and logistics costs, unfavorable product and country mix; net sales up to US$1.40B from US$1.30B on acquisitions
May 2, 2012
The Clorox Company (NYSE: CLX) today reported 7 percent sales growth and 4 percent volume growth for its third quarter, which ended March 31. These results include the benefit of new businesses acquired earlier in the fiscal year. Excluding the acquisitions, volume increased 2 percent and sales grew a strong 6 percent.
"I'm very pleased with our top-line growth in the third quarter," said Chairman and Chief Executive Officer Don Knauss. "We delivered our highest year-over-year sales growth in more than three years. In our U.S. business, sales grew more than 8 percent, and were up more than 6 percent excluding acquisitions. Our categories continued to recover and our market share reached an all-time high. At the same time, margin results were below expectations and remain an area of focus. Looking ahead, we expect margins to begin stabilizing next fiscal year."
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 third-quarter results.
Fiscal Third-Quarter Results
Following is a summary of key third-quarter results. All comparisons are with the third quarter of fiscal year 2011.
$1.02 diluted EPS
4% volume growth
7% sales growth
Clorox reported third-quarter earnings from continuing operations of $134 million, or $1.02 diluted EPS. This compares with $141 million from continuing operations, or $1.02 diluted EPS, in the year-ago quarter. Current quarter results reflected the impact of higher costs for raw materials, manufacturing and logistics, and unfavorable product and country mix, as well as investments in the company's Information Technology (IT) systems and research and development (R&D) facilities. These factors were partially offset by the benefit of price increases and strong cost savings.
Volume for the third quarter of fiscal year 2012 increased 4 percent and sales grew 7 percent, with both delivering gains in all four of the company's reportable segments. Sales growth was primarily driven by volume growth behind product innovation across the portfolio and strong retailer merchandising on several brands. Also contributing to sales growth were the benefit of price increases, and the Aplicare, Inc. and HealthLink acquisitions.
Gross margin decreased 180 basis points to 42.3 percent from 44.1 percent in the year-ago quarter. As anticipated, the decrease in the current quarter gross margin was primarily driven by higher commodity, manufacturing and logistics costs due to inflationary pressure. In addition, unfavorable product and country mix contributed to the decline, due in part to strong retailer merchandising support of larger, more value-oriented products which tend to have somewhat lower margins. These factors were partially offset by the benefit of price increases and strong cost savings.
Year-to-date net cash provided by continuing operations was $333 million, down from $387 million in the year ago period. The change was primarily due to lower tax payments in the year-ago period resulting from favorable tax depreciation rules. For the full fiscal year, Clorox anticipates free cash flow of about 9 percent of sales. The company defines free cash flow as cash provided by continuing operations less capital expenditures.
Key Segment Results
Following is a summary of key third-quarter results by reportable segment. All comparisons are with the third quarter of fiscal year 2011.
(Laundry, Home Care, Away From Home)
7% volume growth
10% sales growth
13% pretax earnings growth
Volume growth in the segment was driven by gains in the Away From Home and Home Care business units. Away from Home grew volume by strong double digits, driven by the recent acquisitions, new products and expanded distribution in health care channels. Home Care volume increased due to higher shipments of Clorox® disinfecting wipes and Clorox® bathroom cleaners behind new products and increased merchandising activity. These results were partially offset by lower shipments in the Laundry business unit primarily due to the negative volume impact of price increases on Clorox 2® stain fighter & color booster and Clorox® bleach. Laundry sales grew behind the price increases. Pretax earnings for the segment reflected higher sales and strong cost savings, partially offset by higher commodity costs and unfavorable product mix.
(Bags and Wraps, Charcoal, Cat Litter)
2% volume growth
6% sales growth
5% pretax earnings growth
Volume growth for the segment was driven by higher shipments in all three business units, with the biggest gains in the Bags and Wraps business unit behind strong growth on Glad® OdorShield® trash bags with Febreze® and Glad® food storage products. Segment sales growth outpaced volume growth primarily due to the benefit of price increases. Pretax earnings reflected higher sales and cost savings. These factors were partially offset by higher costs for manufacturing and logistics and commodities.
(Dressings and Sauces, Water Filtration, Global Natural Personal Care)
4% volume growth
10% sales growth
13% pretax earnings growth
The segment's volume growth was driven by higher shipments in all three business units. The largest gain was in Water Filtration, due to the successful launch of the Brita Bottle®, which allows consumers to drink filtered water on-the-go. Natural Personal Care also had solid volume growth behind the new gud® natural personal care line. Segment sales growth outpaced volume growth due to the benefit of price increases. Pretax earnings reflected higher sales and cost savings, partially offset by higher commodity costs and unfavorable product mix.
(All countries outside of the U.S., excluding Natural Personal Care)
1% volume growth
4% sales growth
49% pretax earnings decrease
The company's largest international region, Latin America, saw strong volume gains due to higher shipments of home care products in Argentina, Mexico, and Perú. These results were partially offset by reduced shipments in the nonstrategic export business, and a double-digit volume decrease in Venezuela resulting from retailer and consumer uncertainty following the government's announcement of a new pricing control law. Sales growth outpaced volume growth primarily due to the benefit of price increases, partially offset by higher trade-promotion spending and unfavorable foreign currency exchange rates. Pretax earnings reflected the impact of inflationary pressure on manufacturing and logistics costs, investments in IT systems, higher advertising expense in support of business growth, and unfavorable product and country mix.
Clorox Updates Outlook for Fiscal 2012
Sales growth of about 4 percent
Gross margin decrease of 125 bps - 150 bps
Diluted EPS in the range of $4.00-$4.10 (unchanged)
Clorox now anticipates fiscal year 2012 sales growth of about 4 percent, versus the previous outlook of 2 percent to 4 percent. This reflects improvement in the company's U.S. categories and strong results behind innovation, execution of price increases and retailer merchandising. Clorox anticipates that sales growth in the fourth quarter will be solidly positive but not as strong as the 7 percent growth in the third quarter, due to a comparison against the company's highest sales quarter of last fiscal year, when sales grew 4 percent.
Due to the continued negative effect of product and country mix, the company now anticipates a gross margin decrease in the range of 125 basis points to 150 basis points, versus the previous outlook of a decrease of 50 basis points to 75 basis points. The company's prior outlook for cost savings, price increases, and the combined inflationary pressures on commodities and manufacturing remain unchanged.
This updated earnings outlook continues to include combined infrastructure and restructuring-related expenses in the range of $50 million to $55 million in fiscal year 2012.
"Our multiyear plan for the global IT systems and R&D facilities investments remains on track," said Senior Vice President - Chief Financial Officer Steve Robb. "We believe these strategic investments will increase productivity and provide platforms for growth, increased innovation and future cost savings. We continue to anticipate completing the projects in fiscal year 2013 with benefits expected to follow beginning in fiscal year 2014."
Clorox Provides Initial Fiscal 2013 Financial Outlook
2-4 percent sales growth
EBIT margin about flat
Diluted EPS in the range of $4.20-$4.35
Clorox anticipates sales growth for fiscal year 2013 in the range of 2 percent to 4 percent. This reflects continued category and market share momentum supported by further innovation across the company's brands, moderated by uncertainty in some international markets and a more challenging comparison to strong fiscal year 2012 sales growth.
Clorox anticipates earnings before interest and taxes (EBIT) margin (EBIT as a percentage of net sales) to be about flat, reflecting modest gross margin improvement offset by somewhat higher administrative expense. The company currently anticipates that cost savings and price increases will offset inflationary pressure on commodities and other manufacturing costs.
Clorox continues to expect spending against its systems and facilities investments, as well as other restructuring-related initiatives, to be about equal to fiscal year 2012, or in the range of $50 million to $55 million. These investments also enable an expected one-time gain of 5 cents to 7 cents diluted EPS related to global real estate optimization initiatives, including the planned sale of the company's former R&D facility in Pleasanton, Calif. Clorox anticipates this one-time gain will be more than offset by the impact of a higher effective tax rate of about 34 percent for the fiscal year.
Net of all these factors, Clorox anticipates fiscal year 2013 diluted EPS from continuing operations in the range of $4.20 to $4.35.
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 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 third-quarter results. The webcast can be accessed at http://investors.thecloroxcompany.com/events.cfm. 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® and gud™ natural personal care products. Nearly 90 percent of the company's 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.