The Clorox Company — Form 10-Q Summary
Business context and reporting period
Clorox reported its first quarter of fiscal 2012, the three months ended September 30, 2011, compared with the quarter ended September 30, 2010. The company sells consumer and institutional products across Cleaning, Household, Lifestyle and International segments. The filing is unaudited.
Key financial metrics
| Metric | Quarter ended Sep. 30, 2011 | Prior-year quarter |
|---|---|---|
| Net sales | $1.305 billion | $1.266 billion |
| Gross profit / margin | $546 million / 41.8% | $561 million / 44.3% |
| Continuing-operations earnings | $130 million | $140 million |
| Net earnings | $130 million | $216 million, including $76 million from discontinued operations |
| Diluted EPS from continuing operations | $0.98 | $0.98 |
| Diluted net EPS | $0.98 | $1.52 |
| Cash from continuing operations | $131 million | $126 million |
| Capital expenditures | $37 million | $34 million |
| Cash and cash equivalents | $270 million | $259 million at June 30, 2011 |
| Total debt: current notes and loans plus long-term debt | $2.562 billion | $2.584 billion at June 30, 2011 |
Net cash provided by operations, including discontinued operations in the prior-year comparison, was $131 million versus $148 million. Cash dividends paid were $79 million; the declared dividend was $0.60 per share, up from $0.55. Current assets were $1.238 billion and current liabilities $1.268 billion. Stockholders’ deficit was $76 million.
Material changes and management commentary
- Sales grew 3%, while volume increased 2%. Price increases contributed approximately 370 basis points to sales growth; unfavorable mix and increased trade promotion spending offset some of the benefit.
- Gross margin fell 2.5 percentage points, primarily due to higher commodity costs (about 320 basis points) and manufacturing and logistics costs (about 240 basis points). Price increases and cost savings partially offset the pressure.
- Segment sales and pretax earnings: Cleaning $439 million and $108 million (down 2% and 11%); Household $366 million and $42 million (up 3% in sales, down 21% in earnings); Lifestyle $214 million and $54 million (up 6% in sales, down 7% in earnings); International $286 million and $41 million (up 9% and 3%).
- Management attributed demand gains to cat-litter innovation, Burt’s Bees products, Clorox disinfecting wipes and bathroom cleaner, and the Brita on-the-go bottle. Weakness included Clorox laundry additives, Glad base trash bags and Brita pour-through products.
- Continuing-operations diluted EPS was unchanged at $0.98. Higher commodity and operating costs and advisory fees for a withdrawn proxy contest were offset by pricing, volume, cost savings, lower average debt and fewer weighted-average shares.
Liquidity, debt, risks and outlook
Clorox described its financial condition and liquidity as strong. It had $434 million of commercial paper outstanding at a 0.39% weighted-average rate and an undrawn $1.1 billion revolving credit facility expiring in April 2013. The trailing-four-quarter covenant EBITDA ratio was 2.31 against a maximum of 3.25; the company reported covenant compliance and expected to remain compliant. No specific sales or earnings guidance was provided; management cautioned that interim results are not necessarily indicative of full-year results.
Key exposures include volatile commodity and energy costs, supply and transportation disruptions, pricing and competitive responses, customer concentration (Walmart represented 27% of sales), international and foreign-exchange risks, information-systems execution, and legal and environmental matters. Recorded environmental remediation liabilities were $15 million; additional exposure is possible but not estimable. Management said other litigation and claims were not expected to materially affect the consolidated financial statements. The company used derivatives to manage commodity, interest-rate and foreign-currency exposures; no collateral was required at quarter-end.
Important facts for investors to verify
- Whether pricing and cost savings can offset continued commodity, manufacturing and logistics inflation without weakening volume or mix.
- Segment-level earnings trends, particularly continued declines in Cleaning, Household and Lifestyle despite sales or volume growth in some segments.
- Commercial-paper funding access, debt levels and headroom under the 3.25 covenant limit.
- Potential changes in the environmental remediation estimate and developments in other legal, product-liability and regulatory matters.
- The effect of the prior-year Auto business sale on comparisons: prior-year net earnings included discontinued-operation earnings and a gain on sale, making total net earnings and EPS less comparable to the current quarter.