Clorox Company — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2021; comparisons are with the corresponding prior-year periods. Financial amounts are in millions, except per-share data.
Business context and results
Clorox sells consumer and professional products across Health and Wellness, Household, Lifestyle, and International segments. Management said many product categories continued to have elevated demand versus pre-pandemic levels, while prior-year pandemic-related demand created difficult comparisons.
| Metric | Three months | Six months |
|---|---|---|
| Net sales | $1,691, down 8% | $3,497, down 7% |
| Gross profit / margin | $558 / 33.0%; margin down from 45.4% | $1,228 / 35.1%; margin down from 46.8% |
| Net earnings attributable to Clorox | $69 vs. $259 | $211 vs. $674 |
| Diluted EPS | $0.56 vs. $2.03, down 72% | $1.70 vs. $5.25, down 68% |
| Operating cash flow | Not provided separately for the quarter | $222 vs. $629 |
Gross-margin contraction was attributed primarily to higher manufacturing and logistics costs and unfavorable commodity costs. Six-month earnings also faced comparison with a prior-year, noncash $85 million Saudi joint venture remeasurement gain.
Material changes and segment performance
- Health and Wellness sales fell 21% for the quarter and 15% for six months, mainly reflecting lower Cleaning and Professional Products shipments after elevated COVID-related demand in the prior year; segment pretax earnings fell 77% and 68%, respectively.
- Household quarterly sales rose 3%, helped by favorable price/mix and Bags and Wraps, but six-month sales declined 5%. Segment pretax earnings fell 83% for the quarter and 73% for six months, largely due to cost inflation.
- Lifestyle sales rose 2% for the quarter and 3% for six months, supported by Brita and food products; pretax earnings declined 10% and 9%.
- International sales were essentially flat in both periods; pretax earnings fell 37% for the quarter and 68% for six months, reflecting higher costs and, for the six-month comparison, the prior-year joint venture gain.
Cash, debt, and liquidity
- Six-month operating cash flow was $222, down from $629, due mainly to lower cash earnings and working-capital outflows, including lower accounts payable and accrued liabilities.
- Investing cash outflow was $112; financing cash outflow was $235. Cash, cash equivalents, and restricted cash ended the period at $196, versus $737 a year earlier.
- At December 31, 2021, cash and cash equivalents were $192. Notes and loans payable were $383, current maturities of long-term debt were $600, and long-term debt was $1,886.
- Clorox repaid $300 of senior notes due in November 2021 using commercial paper. The $1.2 billion revolving credit facility had no borrowings; the company reported compliance with its covenants and said it expected continued compliance.
- Current assets were $1,741 and current liabilities $2,596. Management described financial condition and liquidity as strong and cited expected operating cash generation, capital-markets access, and borrowing availability.
- Six-month dividends paid to Clorox stockholders were $285; share repurchases were $25.
Outlook, risks, and contingencies
The filing provides no specific numerical sales, earnings, or margin guidance. Management expected a continuing inflationary environment, with higher manufacturing, logistics, and commodity costs. It noted risks from transportation, logistics, and supply constraints, and uncertainty around the pandemic’s future effects on demand, operations, and the economy.
Other disclosed risks include competition, customer concentration, supply-chain dependencies, foreign-exchange and Argentina-related volatility, cyber and technology risks, and environmental and legal contingencies. Recorded environmental remediation liabilities totaled $28; the filing notes that actual requirements or costs could increase, and certain additional exposure was not estimable. Management did not expect other disclosed legal matters, individually or collectively, to materially affect the financial statements.
Investor facts to verify
- Whether pricing and mix can offset inflation and restore gross margins.
- Whether shipment trends in Health and Wellness and Professional Products recover as pandemic comparisons and customer inventories normalize.
- Working-capital and cash-flow trends, including the effect of accounts payable timing.
- Commercial-paper refinancing, upcoming debt maturities, and continued covenant compliance.
- Potential changes in environmental remediation requirements and costs, and the evolution of COVID-19, supply-chain, and commodity risks.