Shares of The Clorox Company (NYSE:CLX) CLX gained more than 3% in the premarket trading session on Nov 2, following better-than-expected first-quarter fiscal 2021 results, wherein earnings and sales grew year over year. Results gained from strong consumer demand for its products, which resulted in double-digit sales growth across all segments. Also, it is progressing well with its IGNITE strategy.
Consequently, shares of this company have rallied 35% year to date, outperforming the industry’s 8.5% growth.
Q1 Highlights
Adjusted earnings surged 103% year over year to $3.22 per share, beating the Zacks Consensus Estimate of $2.34. The upside was mainly driven by higher net sales, improved margins and gains from its Saudi joint venture.
The company posted net sales of $1,916 million, up 27% year over year, surpassing the Zacks Consensus Estimate of $1,756 million. This was backed by double-digit volume growth in majority of the segments, fueled by strong demand for its products due to the coronavirus outbreak and the stay-at-home trend. However, growth was partly offset by 1 point of adverse foreign currency impact. Organic sales increased 27% in the quarter.
Gross margin expanded 400 basis points (bps) to 48% in the fiscal first quarter. This marked the company’s eighth straight quarter of gross margin expansion. The rise in gross margin was driven by gains from cost savings and sturdy volume growth, somewhat marred by higher expenses for manufacturing and logistics.
Segmental Discussion
Sales of the Health and Wellness segment rose 28% to $813 million on double-digit growth in all three business units. Retained momentum in shipments across the Cleaning and Professional Products units, stemming from COVID-19-led demand for these products, was the primary growth driver.
The Household segment’s sales rose 39% to $500 million, driven by growth across all business units. Particularly, the company witnessed strong double-digit growth in Bags and Wraps, and Grilling businesses, owing to a much stronger consumer demand.
Sales in the Lifestyle segment grew 17% to $318 million on double-digit sales growth in the Food and Water Filtration businesses, owing to strong consumer demand.
In the International segment, sales increased 18% to $285 million from the year-ago quarter on robust volume growth, driven by solid demand for cleaning and disinfecting products as well as other household items. Organic sales for the segment rose 17% owing to gains from the Saudi joint venture acquisition to the tune of 9 points, partly mitigated by 8 points of negative currency impact.
Financials
Clorox ended the quarter with cash and cash equivalents of $860 million and long-term debt of $2,781 million. Further, the company generated $383 million of net cash from continuing operations.
The Clorox Company Price, Consensus and EPS Surprise
Fiscal 2021 Guidance
Though there remains uncertainty about the future business trends due to the COVID-19 outbreak, Clorox revised its outlook for fiscal 2021 based on the current trends and some assumptions. These include persistent strong demand globally for cleaning and disinfecting products, aggressive investments in its global portfolio, discretionary pressures on consumers due to the ongoing recession, and minimal disruptions in its extended supply chain and other operations.
Notably, management remains optimistic about sales growth for the rest of the year. In this regard, it now envisions fiscal 2021 sales growth with double-digit sales growth in the fiscal second quarter. However, the second half of fiscal 2021 is likely to witness a deceleration in sales. The sales guidance is inclusive of currency headwinds to the tune of 1 point and a 1-point gains from its Saudi joint venture acquisition. Further, organic sales for fiscal 2021 is anticipated to be up 5-9%.
Moving on, gross margin is estimated to remain flat as a rise in commodity, transportation and other COVID-19-related expenses is likely to be partly offset by cost savings and higher sales. Also, SG&A costs, as a percentage of sales, is expected to be 14% due to long-term growth initiatives. Apart from these, adjusted earnings for fiscal 2021 are forecasted to rise 5-8% to $7.7-$7.95 per share on the back of sturdy sales. This also includes 45-53 cents of potential gains from the Saudi joint venture.
Stocks to Consider
Lamb Weston Holdings (NYSE:LW) LW has a long-term earnings growth rate of 7% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Procter Gamble Company PG has a long-term earnings growth rate of 7.6%. The stock presently carries a Zacks Rank #2.
Nu Skin Enterprises NUS, with a long-term earnings growth rate of 6.8%, currently carries a Zacks Rank #2.
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