The Clorox Company — Q2 FY2023 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2022. Financial amounts are in millions of dollars except per-share data. The filing is unaudited.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $1,715; up 1% year over year | $3,455; down 1% |
| Gross profit / margin | $620 / 36.2%, versus $558 / 33.0% | $1,246 / 36.1%, versus $1,228 / 35.1% |
| Net earnings attributable to Clorox | $99, versus $69 | $184, versus $211 |
| Diluted EPS | $0.80, versus $0.56 | $1.49, versus $1.70 |
| Net cash from operations | $387 for the six months, versus $222 |
Quarterly gross-margin improvement reflected pricing and cost savings, partly offset by commodity costs, unfavorable mix, and higher manufacturing and logistics costs. Quarterly diluted EPS rose 43%; six-month EPS fell 12%, with lower volume, costs, and foreign exchange among the pressures.
Segments and material changes
- Quarter: Household sales rose 9% and segment pretax earnings increased to $44 from $10. Health and Wellness sales fell 2%, while pretax earnings rose to $103 from $56. Lifestyle sales increased 2%, but pretax earnings declined to $74 from $80. International sales fell 3%; pretax earnings rose to $24 from $19.
- Six months: Health and Wellness sales fell 3% and Household sales rose 2%; Lifestyle sales were essentially flat and International sales fell 2%. Pretax earnings increased in Health and Wellness and Household, but decreased in Lifestyle and International.
- Consolidated volume declined 10% in the quarter and 13% for six months, primarily reflecting pricing actions. Price/mix supported sales growth despite lower volume.
- Selling and administrative expense rose 17% for the quarter and 14% for six months, mainly due to incentive compensation and investment in digital capabilities and productivity. Advertising expense declined, primarily because of spending timing.
Cash, debt, and liquidity
- Six-month operating cash flow was $387; capital expenditures were $88; cash dividends paid to Clorox shareholders were $291. Cash and cash equivalents were $168 at December 31, 2022.
- Current assets were $1,622 and current liabilities $1,878. Notes and loans payable were $209; long-term debt was $2,476. The company had no borrowings under its $1.2 billion revolving credit agreement and reported compliance with its covenants.
- Management said liquidity remained strong and expected operating cash flow, capital-market access, and borrowing availability to support operating and liquidity needs. It noted that current liabilities may periodically exceed current assets under its debt-management policies.
- Supplier-finance amounts included in accounts payable were $200 at December 31, 2022, versus $211 at June 30, 2022. The company said the program does not directly affect its balance sheet, cash flows, or liquidity.
Outlook, risks, and unusual items
- The filing provides no explicit company-wide fiscal 2023 sales or EPS guidance in the included text. Management expected inflation, supply-chain disruption, and elevated manufacturing, logistics, and commodity costs to continue through fiscal 2023; pricing and cost savings were key responses.
- A streamlined operating model is expected to be completed in fiscal 2024. Clorox expects $75–$100 of implementation costs across fiscal 2023 and 2024, including $40–$60 in fiscal 2023, and approximately $75–$100 of annual savings once fully implemented. It anticipated about $25 of savings in fiscal 2023. Costs are expected to be primarily cash-settled.
- The estimated fair value of P&G’s 20% Glad venture interest was $527, down from $635 at June 30, 2022; $489 was recognized in other liabilities. The valuation depends on assumptions and market factors, and changes affect cost of products sold. The agreement expires in January 2026 unless extended or otherwise addressed; termination would require a cash purchase of P&G’s interest.
- The company’s frozen domestic pension plan is being terminated, a process expected to take 18–24 months; the ultimate charge could not yet be determined. The plan was fully funded under specified ERISA rules at period-end.
- Recorded environmental remediation liabilities were $26. The filing describes uncertainty around potential additional remediation requirements and exposure, as well as other legal proceedings; management did not expect the matters, beyond amounts provided, to materially affect the consolidated financial statements.
- Other cited risks include persistent inflation and supply constraints, demand normalization, foreign-exchange and geopolitical volatility (including Ukraine), customer concentration (Walmart represented 25% of quarterly sales), and possible future impairment risk in the Vitamins, Minerals and Supplements reporting unit.
Important facts for investors to verify
- Whether pricing and cost savings can sustain margin recovery as volume declines and cost pressures persist.
- Delivery, timing, and cash costs of the operating-model restructuring versus its projected savings.
- Changes in the Glad venture valuation and related liability or cost-of-products-sold effects.
- Liquidity and working-capital trends, including supplier-finance balances and the company’s ability to maintain cash generation.
- Progress and potential charges from the pension-plan termination, environmental matters, and any VMS goodwill impairment indicators.