Clorox 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2023, ended March 31, 2023. Amounts are in millions except per-share data. The filing is unaudited.
Business context and results
Clorox sells consumer and professional products through four reportable segments: Health and Wellness, Household, Lifestyle, and International. Quarterly sales increased as pricing and mix more than offset lower volume; results included a substantial non-cash impairment charge related to the Vitamins, Minerals and Supplements (VMS) business.
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $1,915 | $1,809 | $5,370 | $5,306 |
| Gross profit | $800 | $649 | $2,046 | $1,877 |
| Gross margin | 41.8% | 35.9% | 38.1% | 35.4% |
| Net earnings (loss) attributable to Clorox | $(211) | $150 | $(27) | $361 |
| Diluted EPS | $(1.71) | $1.21 | $(0.22) | $2.91 |
| Operating cash flow | — | — | $728 | $451 |
| Capital expenditures | — | — | $144 | $172 |
Financial position and cash flow
- At March 31, 2023, cash and cash equivalents were $242; current assets were $1,745 and current liabilities were $1,996.
- Debt included $138 of notes and loans payable and $2,476 of long-term debt. The company had no borrowings under its $1.2 billion revolving credit agreement and reported compliance with its covenants.
- Nine-month operating cash flow rose to $728 from $451, primarily from lower working capital and lower incentive compensation payments. Investing activities used $142; financing activities used $526, including $437 of dividends paid to Clorox stockholders.
- Cash, cash equivalents and restricted cash totaled $246 at period-end in the cash-flow statement; the balance sheet reports cash and cash equivalents of $242.
Material changes and unusual items
- Sales rose 6% in Q3 and 1% for the nine-month period. Organic sales growth was 8% and 3%, respectively. Volume fell 11% and 12%, respectively, with pricing and mix driving the difference between sales and volume.
- Gross margin expanded 590 basis points in Q3 and 270 basis points for the nine months, principally from pricing and cost savings, partly offset by commodity, manufacturing, and logistics costs.
- Q3 included $445 of non-cash impairments: $306 for VMS goodwill and $139 for trademarks. The charges followed lower VMS sales-growth expectations and reduced investment plans; no goodwill remains in the impaired reporting unit. The company recorded $83 of related tax benefits.
- Higher selling and administrative costs reflected incentive compensation and investments in digital capabilities and productivity; advertising expense also increased. The nine-month effective tax rate was 1,813.5%, reflecting low pre-tax income and partial non-deductibility of impairment charges.
- Segment sales for Q3 were Health and Wellness $707 (+7%), Household $550 (+2%), Lifestyle $353 (+15%), and International $305 (+1%). Health and Wellness results included $433 of impairments; International included $12. Household and Lifestyle earnings before tax increased, while International earnings declined.
Outlook, risks, and contingencies
- The filing provides no specific full-year sales or EPS guidance. Management expected inflation, supply-chain disruption, and elevated manufacturing, logistics, and commodity costs to continue through FY2023; the company planned to use pricing, cost savings, and supply-chain optimization to respond.
- The streamlined operating-model initiative is expected to be completed in FY2024. Clorox estimated $75–$100 of implementation costs in FY2023–FY2024, with approximately $40–$60 expected in FY2023, and projected annual savings of approximately $75–$100 once fully implemented.
- Key risks cited include input-cost inflation, supply constraints, competition, pricing and volume pressure, foreign-exchange and geopolitical uncertainty, reliance on major customers, and execution of the restructuring and cost-savings plans. Walmart and affiliates represented 26% of sales in the nine-month period.
- Environmental remediation liabilities were $26 at March 31, 2023. Additional exposure is possible; some potential costs are not estimable. Management said other legal matters were not expected to materially adversely affect the consolidated financial statements, while noting uncertainty.
- Procter & Gamble held a 20% interest in the Glad venture. Its estimated fair value was $527, of which $492 was recognized in other liabilities. On termination, Clorox may have to buy P&G’s interest for cash; the agreement expires in January 2026 unless extended or otherwise changed.
- Amounts due to suppliers participating in the voluntary supply-chain-finance program were $212 and were included in accounts payable. Clorox said supplier participation does not change its payment obligations.
Important facts for investors to verify
- Whether sales growth and margin recovery can continue while volumes remain lower and input costs stay elevated.
- VMS performance and the assumptions underlying the $445 impairment, including projected sales and trademark valuations.
- Progress, cash costs, timing, and realized savings from the streamlined operating model.
- Cash-flow sustainability and the effect of supplier payment terms and the $212 supply-chain-finance balance on working capital.
- Potential changes in the Glad venture valuation or eventual cash purchase obligation, and developments in environmental remediation matters.