Clorox Company — Form 10-Q Summary
Period: Fiscal third quarter and nine months ended March 31, 2021; comparisons are with the periods ended March 31, 2020. The request metadata says “2020 Q3,” but the filing itself covers fiscal 2021 Q3.
Business context: Clorox sells consumer and professional products through four reportable segments: Health and Wellness, Household, Lifestyle, and International. Management reported continued elevated demand for many products, particularly disinfecting cleaners, amid the COVID-19 pandemic.
Financial performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Net sales | $1.781 billion, essentially flat year over year | $5.539 billion, up 17% |
| Gross profit / margin | $774 million; 43.5%, down from 46.7% | $2.531 billion; 45.7%, up from 45.0% |
| Net earnings attributable to Clorox | Loss of $61 million, or $(0.49) per diluted share, versus earnings of $241 million, or $1.89 per diluted share | $613 million, or $4.78 per diluted share, versus $629 million, or $4.94 |
| Operating cash flow | Not separately reported for the quarter in the supplied filing text | $893 million, versus $806 million |
- Quarterly results included $329 million of non-cash impairment charges tied to the Vitamins, Minerals and Supplements (VMS) business: $228 million goodwill, $86 million trademarks, and $15 million other assets.
- Quarterly gross margin pressure reflected higher manufacturing and logistics costs and unfavorable commodity costs, partly offset by lower trade promotion spending and cost savings.
- Nine-month results benefited from higher demand and favorable mix; earnings per diluted share also reflected the VMS impairment and higher advertising and administrative spending, partly offset by margin expansion and an $85 million non-cash gain on remeasurement of the previously held Saudi joint venture interest.
Segments and material changes
- Health and Wellness: Quarterly sales fell 8% and segment earnings before tax were a loss of $183 million, including the VMS impairment. Lower shipments in Cleaning and Professional Products and supply constraints also weighed on the quarter. Nine-month sales rose 19%, while earnings fell 39%.
- Household: Quarterly sales rose 6%, but earnings fell 15% amid higher manufacturing, logistics, and commodity costs and increased advertising. Nine-month sales rose 20% and earnings rose 40%.
- Lifestyle: Quarterly sales were essentially flat and earnings fell 15%; nine-month sales rose 8% and earnings rose 7%.
- International: Quarterly sales rose 9%, including the Saudi joint venture acquisition, while earnings fell 17% due mainly to higher costs and unfavorable foreign exchange. Nine-month sales rose 17% and earnings rose 74%, including the Saudi remeasurement gain.
- Clorox acquired a controlling 51% interest in its Saudi joint venture in July 2020 and began consolidating it. The joint venture contributed $65 million of nine-month sales.
Cash, debt, and liquidity
- At March 31, 2021, cash and cash equivalents were $492 million; current assets were $1.962 billion and current liabilities were $1.819 billion.
- Total debt was $2.783 billion, comprising $300 million of current maturities and $2.483 billion of long-term debt. The filing reports no borrowings under its $1.2 billion revolving credit agreement, which matures in November 2024.
- Nine-month investing cash use was $341 million, including $232 million of capital expenditures and $85 million for businesses acquired, net of cash acquired. Financing cash use was $944 million, including $605 million of treasury stock purchases and $420 million of dividends paid to Clorox stockholders.
- Management characterized liquidity as strong, expected positive future operating cash flows, and reported compliance with credit-agreement covenants. The trailing-four-quarter interest coverage ratio was 17.6 against a minimum covenant of 4.0.
Outlook, risks, and contingencies
- The filing provides no quantified sales or earnings guidance in the supplied text. Management said future COVID-19 impacts remain uncertain, including the duration and intensity of the pandemic, demand, and the company’s ability to manufacture and distribute products.
- Key risks include supply-chain and product-availability constraints, higher commodity, freight, and manufacturing costs, competition, changing consumer and retail conditions, foreign-exchange and international-market risks, and the VMS business’s competitive and operating challenges.
- Environmental remediation liabilities were $27 million at March 31, 2021. At one California site, regulators could require alternatives estimated to cost up to $28 million over about 30 years, compared with the $14 million recorded for that matter. The company also noted potential unestimable additional exposure at a Michigan site.
- Management stated that other legal proceedings and claims, to the extent not already provided for, were not expected to materially adversely affect the consolidated financial statements. No material guarantee liabilities were recorded.
Important facts for investors to verify
- Whether post-quarter demand normalizes from pandemic-related elevated levels and how that affects sales volumes.
- Whether manufacturing, logistics, and commodity-cost inflation continues to pressure gross margins, and the pace of any pricing or cost-saving response.
- VMS performance and the assumptions underlying the $329 million impairment, including the revised outlook for its remaining trademarks.
- Cash conversion, inventory levels, capital spending, and the company’s ability to sustain dividends and repurchases while managing debt.
- Potential changes in environmental remediation requirements and the resulting unrecorded exposure.