The Clorox Company — Form 10-Q summary
Reporting period: Quarter ended March 31, 2015, with year-to-date results for the nine months ended that date. The filing’s period differs from the request metadata (“2014 Q3”); this summary reflects the filing’s stated period. Amounts are in millions of dollars except per-share data.
Business context and results
Clorox sells consumer and professional products through four segments: Cleaning, Household, Lifestyle and International. Venezuela operations, discontinued effective September 22, 2014, are reported as discontinued operations.
| Metric | Quarter ended March 31, 2015 | Prior-year quarter | Nine months ended March 31, 2015 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $1,401 | $1,366 | $4,098 | $4,017 |
| Gross profit / margin | $605 / 43.2% | $575 / 42.1% | $1,755 / 42.8% | $1,714 / 42.7% |
| Continuing-operations earnings | $144 | $151 | $417 | $408 |
| Diluted continuing-operations EPS | $1.08 | $1.14 | $3.14 | $3.10 |
| Net earnings, including discontinued operations | $174 | $137 | $389 | $388 |
| Diluted net EPS | $1.30 | $1.04 | $2.93 | $2.94 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $495 total; $481 continuing operations | $430 total; $444 continuing operations |
Performance and material changes
- Quarterly sales rose 3%; volume increased 1%. Year-to-date sales and volume each rose 2%. Price increases, favorable mix and higher volume supported sales, partly offset by foreign exchange and higher trade promotion spending.
- Quarterly gross margin improved 110 basis points, mainly from cost savings, pricing and favorable mix; higher manufacturing and logistics costs and incentive compensation partly offset gains. Year-to-date margin increased 10 basis points.
- Quarterly continuing-operations diluted EPS fell 5%, reflecting higher performance-based compensation, manufacturing and logistics costs, demand-building investment and unfavorable foreign exchange. Year-to-date EPS rose 1%, aided by sales, volume, cost savings, pricing and a one-time disability-plan benefit.
- Household was the strongest segment: quarterly sales rose 5% and pretax segment earnings rose 34%. International quarterly sales were flat while pretax segment earnings fell 26%; year-to-date International sales declined 1% and earnings fell 23%, principally due to foreign exchange and inflationary costs.
- Quarterly net earnings included a $30 after-tax gain from other discontinued operations, related to recognition of previously unrecognized tax benefits. Year-to-date discontinued-operations losses were $28 after tax, including $58 of Venezuela losses partly offset by the $30 gain.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $378 at March 31, 2015, versus $329 at June 30, 2014. Current assets were $1,495 and current liabilities $1,300.
- Total debt was $2,166, comprising $70 of notes and loans payable, $300 of current maturities and $1,796 of long-term debt. The company issued $500 of 3.50% senior notes due 2024 and repaid $575 of 5.00% notes maturing in January 2015.
- Continuing-operations operating cash flow was $481; capital expenditures were $83. Financing used $348, including $288 of cash dividends and $144 of treasury-stock purchases. Cash dividends declared were $2.22 per share year to date.
- The $1.1 billion revolving credit facility had no borrowings. Clorox reported a 1.85 consolidated leverage ratio against a 3.50 covenant maximum and stated it was compliant. A further $33 was available under foreign and other credit lines.
Outlook, risks and unusual items
- No specific full-year sales or EPS guidance is provided in the filing text. Management expected to exceed annual performance-based incentive targets in fiscal 2015.
- Management estimated $60–$65 of after-tax Venezuela exit costs for fiscal 2015 and another $10–$15 in fiscal 2016–2018, totaling $70–$80 over three years; estimated after-tax cash expenditures were $5–$10. Foreign-exchange changes and other external factors could materially affect these estimates.
- Venezuela discontinued operations after price controls, hyperinflation and sustained operating losses; the government occupied the production facilities and asserted control. Clorox and its affiliates reserved their legal rights.
- A Brazilian lawsuit related to discontinued operations could result in an additional loss estimated at $0–$24; the company stated its defenses were meritorious and was pursuing appeals. Environmental remediation liabilities were $12, with possible additional exposure not estimable.
- Key disclosed risks include foreign-exchange volatility, price controls and political instability, competition, commodity and logistics costs, customer concentration, supply disruptions, litigation, and cybersecurity. Wal-Mart represented 26% of year-to-date sales.
- Subsequent event: a housing partnership property sale was expected to provide $14 cash proceeds and a $13 gain, with about $8 of related cash tax payments expected in fiscal 2016.
Important facts for investors to verify
- Confirm the reporting-period discrepancy: the filing covers the quarter ended March 31, 2015, not 2014 Q3.
- Assess recurring continuing-operations performance separately from discontinued-operations gains and losses, particularly the $30 tax-related gain.
- Monitor Venezuela exit-cost estimates, recovery or disposition of assets, and any material currency or legal developments.
- Track International segment profitability, foreign-exchange effects, incentive compensation, and whether pricing and cost savings offset inflation and operating costs.
- Review debt, leverage covenant headroom, capital returns, and the unresolved Brazilian litigation and environmental exposure.