Clorox — Form 10-Q Summary
Business context and period: The Clorox Company is a multinational consumer and professional products company. This filing covers the three months ended September 30, 2021, the first quarter of fiscal 2022, and compares results with the three months ended September 30, 2020. Amounts are in millions of dollars except per-share data.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Net sales | $1,806 | $1,916 | Down 6% |
| Gross profit / margin | $670 / 37.1% | $920 / 48.0% | Down 27%; margin down 10.9 percentage points |
| Earnings before income taxes | $185 | $526 | Down 65% |
| Net earnings attributable to Clorox | $142 | $415 | Down 66% |
| Diluted EPS | $1.14 | $3.22 | Down 65% |
| Net cash from operations | $41 | $383 | Down $342 |
Gross margin pressure reflected higher commodity, manufacturing and logistics costs. Sales fell 6%; organic sales declined 5%, with volume down 2%. Selling and administrative expense was $236, advertising $182, research and development $33, and interest expense $25.
Operating cash flow was $41; capital expenditures were $52, and cash dividends paid to Clorox stockholders were $142. Cash and cash equivalents were $210 at quarter-end, compared with $319 at June 30, 2021. Current assets were $1,820 and current liabilities $2,639. Total debt carrying value was $2,870, including $86 of notes and loans payable and $2,784 of long-term debt and current maturities; the filing reports $2,784 of long-term debt and current maturities at June 30. The company had a $1,200 revolving credit facility with no borrowings outstanding.
Changes and segment performance
- Health and Wellness sales declined 8% to $745; segment earnings before taxes fell 58% to $105. Professional Products shipments were lower as customers worked through inventory, while Cleaning shipments increased.
- Household sales declined 12% to $442; segment earnings fell 67% to $36, reflecting lower Grilling shipments and unfavorable commodity costs.
- Lifestyle sales increased 4% to $331, while segment earnings fell 9% to $93 amid cost inflation.
- International sales increased 1% to $288; segment earnings fell 76% to $30. The prior-year comparison included an $85 noncash remeasurement gain related to the Saudi joint venture.
Consolidated earnings comparisons were also affected by that prior-period, nonrecurring gain. The prior-period effective tax rate was lower partly because a portion of the gain was nontaxable; the current-period effective tax rate was 22.6%, versus 20.7%.
Outlook, risks and contingencies
The filing provides no specific numerical sales, earnings or EPS guidance. Management expects continued inflation in manufacturing, logistics and commodity costs and describes the operating environment as variable. It reported no significant operational disruptions to date in fiscal 2022, but cited ongoing risks from COVID-19 developments, transportation and supply constraints, and higher raw-material costs. Management stated it expects to have funds for short-term liquidity and operating needs through operating cash flows, capital-market access and available credit.
Other disclosed risks include competition, customer concentration, supply-chain dependencies, currency and inflation pressures in Argentina, cyber and information-technology risks, and environmental and legal matters. Walmart and its affiliates represented 25% of consolidated sales in both periods. Recorded environmental remediation liabilities totaled $28; regulators could require additional remediation at a California site, and the company said additional exposure for a Michigan matter was not estimable. Management said other legal matters were not expected to have a material adverse effect, individually or in aggregate.
Most important facts to verify
- Whether cost inflation, supply-chain constraints and pricing actions continue to pressure gross margin and cash generation.
- Whether demand and shipment trends in Health and Wellness and Household stabilize, including professional-customer inventory levels and Grilling comparisons.
- The durability of liquidity and debt-management capacity, especially given current liabilities exceeding current assets and the disclosed debt maturities.
- Potential changes in environmental remediation obligations and the effects of COVID-19, currency volatility and inflation in international markets.
- How much of future earnings comparisons reflects underlying operations versus the absence of the prior-year Saudi joint venture gain.