Clorox Company — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020. The request metadata says “2019 Q4,” but this filing covers FY2020, not that quarter. The supplied text refers key financial statements and detailed MD&A to Exhibit 99.1, which is not included here; therefore several financial values are not available in the provided filing text.
Business context and reporting period
Clorox is a multinational consumer and professional products company with approximately 8,800 employees. Its brands include Clorox, Pine-Sol, Glad, Kingsford, Hidden Valley, Brita, Burt’s Bees and several supplement brands. More than 80% of sales come from brands with No. 1 or No. 2 market positions in their categories.
In Q4 FY2020, the company realigned its reportable segments. Cleaning, professional products, and vitamins, minerals and supplements were combined as Health and Wellness; the other segments are Household, Lifestyle and International. Prior periods were recast.
Financial performance and key metrics
| Metric | FY2020 disclosure |
|---|---|
| Net sales | $6.7 billion; increased 8% year over year |
| Diluted EPS | Increased 16% year over year; absolute EPS not stated in supplied text |
| Net income, operating income and margins | Clear values not provided in supplied text |
| Cash flow and capital expenditures | Clear values not provided in supplied text |
| Debt | Nearly $3 billion at June 30, 2020 |
| Revolving credit facility | No borrowings outstanding at June 30, 2020 |
| Dividends | $533 million paid in FY2020; quarterly dividend increased 5% in May 2020 |
| Environmental remediation liability | $28 million at June 30, 2020, compared with $27 million a year earlier |
Cleaning products accounted for 43% of consolidated sales, bags and wraps 15%, and food products 10%. The U.S. represented 85% of net sales; international markets represented 15%. Walmart and its affiliates accounted for 25% of sales, and the five largest customers together accounted for nearly half.
Changes versus the prior comparable period
- Sales rose 8% and diluted EPS rose 16% compared with FY2019, amid exceptional COVID-19-related demand for cleaning, disinfecting and other essential household products.
- Cleaning products increased to 43% of sales from 40% in FY2019; bags and wraps declined to 15% from 16%.
- The company reorganized its reportable segments in Q4; prior periods were recast for comparability.
- The quarterly dividend was raised 5% in May 2020. The filing reports $533 million of dividends paid during FY2020.
Outlook, commentary, risks and unusual items
- Management expected elevated near-term demand for cleaning and disinfecting products, while emphasizing uncertainty about the pandemic’s duration, supply availability and consumer behavior. It did not provide specific FY2021 sales or earnings guidance in the supplied text.
- FY2021 challenges include competition, changing retail channels and consumer preferences, higher manufacturing and logistics costs, foreign-exchange changes and a difficult macroeconomic environment. COVID-19 strained supply chains and increased transportation, logistics, workforce and facility-safety costs.
- Key risks include product shortages or disrupted operations, raw-material and freight cost volatility, customer concentration, private-label competition, and reliance on key or single-source suppliers. Walmart represented 25% of sales.
- Debt was nearly $3 billion; management disclosed capacity to add approximately $5 billion of debt while remaining within existing covenants. Credit ratings were investment grade at fiscal year-end.
- The estimated fair value of P&G’s 20% Glad business interest was $610 million at June 30, 2020, of which $400 million was recognized as a liability. The company is required to purchase the interest for cash at fair value when the venture agreement ends in January 2026, unless extended.
- In July 2020, after fiscal year-end, a Peruvian subsidiary voluntarily recalled Poett dilutable cleaning products manufactured in Peru on or before June 30, 2020.
- CEO Benno Dorer was scheduled to step down effective September 14, 2020, with President Linda Rendle to become CEO. These changes were announced after the reporting date.
- Management reported effective disclosure controls; the independent auditor audited internal control over financial reporting. Routine litigation was disclosed, and management stated that, based on its analysis, its ultimate disposition was not expected to materially adversely affect the consolidated financial statements as a whole. Environmental exposure could exceed the recorded liability.
Important facts for investors to verify
- Consult Exhibit 99.1 for audited income statements, balance sheets, cash flows, margins, liquidity details, segment results and full FY2021 outlook; those values are not clear in the supplied text.
- Assess whether COVID-19 demand was sustainable and whether production and distribution could meet demand without sacrificing customer relationships or future brand preference.
- Review the terms and valuation assumptions for the Glad purchase obligation, debt covenants, and the effect of future interest-rate benchmark changes.
- Track the scope, costs and financial impact of the Poett recall, environmental matters and other legal contingencies.
- Evaluate customer concentration and exposure to retailer bargaining power, private-label products, e-commerce shifts and rising supply-chain costs.