The Clorox Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2019 (fiscal 2019 Q3), compared with the same periods ended March 31, 2018. The request metadata says “2018 Q3,” but the filing itself covers 2019 Q3.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $1.551 billion, up 2% | $4.587 billion, up 3% |
| Gross profit / margin | $673 million / 43.4%, versus 42.8% | $1.994 billion / 43.5%, versus 43.6% |
| Earnings from continuing operations | $187 million, versus $181 million | $579 million, versus $606 million |
| Diluted EPS from continuing operations | $1.44, up 5% | $4.45, down 3% |
| Operating cash flow | Not separately stated for the quarter | $603 million, versus $576 million |
Quarterly sales growth reflected higher Lifestyle sales and price increases, partly offset by unfavorable foreign exchange and mix. Gross margin improved for the quarter on pricing and cost savings, but was slightly lower year to date as manufacturing, logistics, commodity and foreign-exchange costs weighed on results. Interest expense increased to $24 million for the quarter and $72 million year to date, mainly due to debt issued in May 2018.
Financial position and cash flows
At March 31, 2019, cash and cash equivalents were $178 million; current assets were $1.393 billion and current liabilities were $1.261 billion. Short-term notes and loans payable were $321 million and long-term debt was $2.286 billion. Operating cash flow of $603 million less capital expenditures of $135 million implies approximately $468 million of operating cash flow after capital spending. Investing activities used $126 million; financing activities used $429 million, including $315 million of treasury-stock purchases and $368 million of dividends paid. The company reported a 13.6x interest-coverage ratio against a 4.0x minimum covenant and said it was in compliance.
Segments and material changes
- Cleaning: Quarterly sales fell 1%; pretax segment earnings were flat. Lower disinfecting-wipe shipments were attributed to a milder cold and flu season and increased competition.
- Household: Quarterly sales fell 1%, while pretax earnings rose 6%. Year-to-date sales fell 1% and pretax earnings fell 8%, reflecting lower shipments, manufacturing and logistics costs, and unfavorable commodities.
- Lifestyle: Quarterly sales rose 23%, primarily from the Nutranext acquisition; pretax earnings fell 7% amid higher costs and integration investment. Nine-month sales rose 24% and pretax earnings rose 2%.
- International: Quarterly sales fell 5% while pretax earnings rose 4%; year-to-date sales fell 6% while pretax earnings rose 12%. Foreign exchange and trade promotion spending pressured sales, while pricing and savings supported earnings.
Nutranext, acquired April 2, 2018 for $681 million, contributed to Lifestyle growth. The company repurchased $309 million of shares and paid $368 million in dividends during the nine months. Sales to Walmart and affiliates represented 25% of consolidated sales in the quarter.
Outlook, risks and unusual items
The filing provides no specific numerical sales, earnings or EPS guidance. Management said it expected positive operating cash flows and believed available funding, credit-market access and borrowing capacity would meet financing needs. It highlighted competition, commodity and logistics costs, pricing and mix, customer concentration, acquisition integration, foreign exchange, and economic and regulatory conditions as risks.
Argentina remained exposed to currency volatility, high inflation and recession; it was treated as a highly inflationary economy from July 1, 2018, with the U.S. dollar becoming the subsidiaries’ functional currency. The company recorded $28 million in environmental remediation liabilities; costs at one site could exceed the $14 million recorded, and additional exposure at another site was not estimable. Management did not expect other pending legal matters to materially affect the financial statements. The company also noted the continuing Venezuela exit, but expected related future costs to be insignificant.
Investor verification points
- Confirm the intended period: the filing is for fiscal 2019 Q3, not 2018 Q3.
- Assess whether pricing can offset continued cost inflation and volume weakness, particularly in Cleaning and Household.
- Track Nutranext integration costs and whether Lifestyle earnings growth catches up with sales growth.
- Monitor Argentina’s currency and inflation effects and potential environmental remediation exposure.
- Review debt, share repurchases and dividend outflows alongside operating cash generation.