Clorox Expands Dietary Supplements Business, Buys Nutranext

The Clorox Company (NYSE:CLX) remains keen on making strategic partnerships with retail customers and evolving capabilities both in the physical world and online. With focus on investing in brands being a key part of its strategy, this consumer products’ maker recently agreed to purchase Nutranext — the Florida-based dietary supplements leader — for $700 million.

The deal is expected to expand the Clorox's dietary supplements business, thereby accelerating growth of its top brands in the fast-growing categories alongside focusing on health and wellness. It also acquired the RenewLife brand, digestive health leader in May 2016, which has been significantly contributing to the Clorox’s e-commerce and extended distribution in the retail businesses.

Expected to close in the fourth quarter of fiscal 2018, the deal is likely to reduce GAAP earnings by 7-11 cents per share in the quarter and 8-12 cents in fiscal 2019. Thereafter, the deal will be accretive to earnings in fiscal 2020. Clorox plans to finance the deal with cash and debt, while retaining its Debt/EBITDA ratio range of 2.0x to 2.5x.

Last year, Nutranext generated sales of nearly $200 million and the purchase price reflects about 3.5 times of sales. Around 90% of this multi-vitamins maker’s revenue is generated in the United States. Its products are sold in the retail and e-commerce channels and through the direct-to-consumer business. Nutranext markets multi-vitamins under the Rainbow Light brand, specialty minerals under the Natural Vitality brand and supplements for hair, skin and nails under the Neocell brand, among others.

Though Clorox has a solid earnings surprise history, this Zacks Rank #3 (Hold) company witnessed significant pressure on gross margin in the second quarter of fiscal 2018. The margin contraction can be attributed to elevated input costs for commodities and tightening of transportation market, which are likely to continue in fiscal 2018. However, we believe deals like this are likely to expand Clorox’s margins and the overall profitability.

In the past month, Clorox has inched up 0.1% faring better than the industry’s decline of 2%.

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