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The Zest for Clorox's Cleaning Fare Tapers in Q3; Cost Headwind Surge; Shares Still Not a Bargain

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

After flying high since the pandemic took hold, Clorox seems to be coming back down to Earth if the third quarter is a guide. In this vein, organic sales slipped 1% (following a 5% retreat in volumes), gross margins contracted 320 basis points to 43.5%, and adjusted operating margins sank 200 basis points to 17.1% by our calculation. However, we don’t think this suggests consumers are turning their backs on Clorox’s cleaning and disinfecting fare. Rather, from a sales perspective, Clorox is still standing above where it was prepandemic, with 15% top-line growth on a two-year stacked basis, including 16.4% higher marks in its health and wellness arm (which houses its retail and professional cleaning operations). However, cost pressures are also wreaking havoc as it pertains to transportation, logistics, and commodities, and we don’t anticipate these headwinds will subside soon (sentiment that seems to align with the broader consumer products cohort). We don’t think Clorox is sitting still but is employing a tactical approach, anchored in investing in consumer-valued innovation supported by advertising, pursuing cost savings, and surgically taking price (with plans to raise prices in its Glad lineup beginning in July).

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Company Profile

Business Description

With a history dating back more than 100 years, Clorox now sells a variety of consumer staples products, including cleaning supplies, laundry care, trash bags, cat litter, charcoal, food dressings, water-filtration products, and natural personal-care products. Beyond its namesake brand, the firm’s portfolio includes Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Kingsford, Fresh Step, Glad, Hidden Valley, KC Masterpiece, Brita, and Burt’s Bees. Just shy of 85% of Clorox’s sales stem from its home turf.

Contact
1221 Broadway
Oakland, CA, 94612-1888
T +1 510 271-7000
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Mar 31, 2021
Fiscal Year End Jun 30, 2021
Stock Type Classic Growth
Employees 8,800

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