Business Context and Reporting Period
Company: The Clorox Company
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended June 30, 2009
Overview: Clorox is a leading manufacturer and marketer of consumer products, including cleaning, lifestyle, household, and international brands. The company operates in more than 100 countries with approximately 8,300 employees. Key brands include Clorox, Glad, Hidden Valley, Brita, Kingsford, and Burt's Bees.
Key Financial Metrics
Revenue: Total net sales for fiscal year 2009 were $5.45 billion.
Profitability: Earnings from continuing operations before income taxes totaled $811 million for fiscal year 2009.
Debt and Liquidity: As of June 30, 2009, the company had total debt of $3.1 billion. The company maintains a $750 million share repurchase program, all of which remained available as of the period end.
Segment Performance (Net Sales in Millions):
| Segment | 2009 Sales | 2008 Sales |
|---|---|---|
| Cleaning | $1,836 | $1,817 |
| Lifestyle | $813 | $676 |
| Household | $1,726 | $1,698 |
| International | $1,075 | $1,082 |
Research and Development: Expenses were $114 million in fiscal 2009.
Material Changes vs. Prior Period
- Revenue Growth: Consolidated net sales increased from $5.27 billion in 2008 to $5.45 billion in 2009.
- Pre-Tax Earnings: Earnings before income taxes rose from $693 million in 2008 to $811 million in 2009.
- Segment Shifts: The Lifestyle segment saw significant growth ($137 million increase), driven largely by the Burt's Bees acquisition. The International segment saw a slight decline in sales ($7 million decrease).
- Commodity Costs: The company experienced significant commodity cost pressures in the first half of fiscal 2009, followed by a decline in costs during the second half.
Guidance, Outlook, Risks, and Contingencies
Strategy: The company is executing its "Centennial Strategy," focused on creating value through investment in new categories, sales channels, and countries aligned with health, wellness, and sustainability trends.
Key Risks:
- Customer Concentration: Wal-Mart Stores, Inc. accounted for 27% of total consolidated net sales in 2009. The top five customers accounted for 43% of sales.
- Commodity Volatility: Profits are sensitive to price fluctuations in raw materials (resin, chlor-alkali, agricultural commodities) and energy costs.
- Debt Levels: With $3.1 billion in debt, the company faces risks related to cash flow availability for debt service and potential restrictions on additional borrowing.
- Environmental Liabilities: A recorded liability of $19 million exists for future remediation costs, primarily related to a site in Dickinson County, Michigan, where the company shares liability with Ford Motor Co.
- Economic Conditions: Unfavorable economic conditions and consumer spending levels pose risks to sales volume and product mix.
Unusual Items: The filing notes that the company acquired Burt's Bees in November 2007 for $913 million, and there is no assurance that projected strategic and financial benefits will be achieved.
Investor Verification Checklist
- Verify the impact of the 27% sales concentration with Wal-Mart on future revenue stability.
- Monitor commodity cost trends (resin, diesel, chlor-alkali) and the company's ability to pass costs to consumers.
- Review the integration progress and profitability of the Burt's Bees acquisition within the Lifestyle segment.
- Assess the company's ability to service $3.1 billion in debt amidst potential economic downturns.
- Track the status of the $19 million environmental remediation liability in Michigan and potential exposure beyond current estimates.