Clorox Company — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended March 31, 2013, Clorox’s fiscal third quarter of fiscal 2013. This differs from the request metadata’s “2012 Q3.” Dollar amounts are in millions except per-share data.
Business and results
Clorox makes and markets consumer and professional products through four segments: Cleaning, Household, Lifestyle and International. The unaudited interim results include normal recurring adjustments; management cautions that interim results are not necessarily indicative of full-year results.
- Quarter: Sales were $1,413, up 1% year over year, while volume was flat. Gross profit was $595 and gross margin was 42.1%, down 20 basis points. Continuing-operations earnings were $134, net earnings were $133, and diluted EPS from continuing operations was $1.00, versus $1.02 a year earlier.
- Nine months: Sales were $4,076, up 4%, with volume up 1%. Gross profit was $1,732 and gross margin was 42.5%, up 60 basis points. Continuing-operations earnings were $390, net earnings were $389, and diluted EPS from continuing operations was $2.94, up 6% from $2.78.
- Costs and taxes: Quarterly selling and administrative expense fell 7% to $196; advertising rose 5% to $132, and R&D rose 13% to $34. The effective tax rate was 33.9% for the quarter and 33.2% for the nine months, above the comparable prior-year rates of 32.2% and 31.7%.
- Dividends: Declared dividends were $0.64 per share for the quarter, compared with $0.60 a year earlier; nine-month dividends were $1.92 versus $1.80.
Cash flow, debt and liquidity
- Nine-month cash from continuing operations was $486, versus $333; total operating cash flow was $485 versus $325. Capital expenditures were $134 versus $119.
- Cash increased to $423 at March 31, 2013, from $267 at June 30, 2012. The company reported $156 of net cash increase over the nine months.
- Total debt was $2,561 at March 31, 2013, compared with $2,721 at June 30, 2012, comprising $392 of notes and loans payable and $2,169 of long-term debt. The company repaid $850 of maturing long-term debt during the period and issued $600 of senior notes in September 2012 at 3.05%, due in 2022.
- A $1.1 billion revolving credit facility expiring in May 2017 had no borrowings. Clorox reported compliance with its covenants; its contract-defined debt/Adjusted EBITDA ratio was 2.24 versus a maximum of 3.50. It also had $35 available under foreign and other credit lines.
Changes, outlook and risks
- Quarterly sales growth reflected price increases, partly offset by unfavorable foreign exchange and mix. Price increases supported sales, while higher manufacturing, logistics and supply-chain costs pressured quarterly margin. Nine-month earnings growth benefited from cost savings, pricing and higher volume.
- Quarterly segment sales increased in Cleaning, Lifestyle and International but declined in Household. International pretax earnings fell 5% for the quarter and 22% for the nine months, with inflation, price controls and unfavorable currency effects weighing on results. Household volume was affected by cold spring weather, competitive activity and distribution losses.
- Management gave no specific numerical full-year earnings or sales guidance in the provided filing text. It cited ongoing risks including commodity and energy costs, execution of cost-saving initiatives, pricing and competitive responses, customer concentration, foreign exchange and inflation, price controls, litigation, and environmental obligations. Wal-Mart and affiliates represented 27% of quarterly sales and 26% of nine-month sales.
- Venezuela’s official exchange rate was devalued from 4.3 to 6.3 bolívares per U.S. dollar and the SITME system was eliminated. Clorox recorded a $3 remeasurement loss; it estimated that a hypothetical additional 10% devaluation would produce another $3 loss based on its March 31 net monetary position.
- A Brazilian lawsuit involving Petroplus remained under appeal. Clorox described a reasonably possible additional loss range of $0–$31 beyond amounts accrued. Separately, it recorded $14 for environmental remediation; possible additional exposure was not estimable.
- The Oakland office sale-leaseback generated $108 net proceeds and a $6 gain; the company entered a 15-year operating lease for part of the building and deferred most of the gain over the lease term.
Important facts for investors to verify
- Confirm the intended reporting period: the filing is for fiscal Q3 2013, not 2012 Q3.
- Assess whether pricing and cost savings can offset continued manufacturing, logistics, inflation and foreign-exchange pressures.
- Track International segment profitability and developments in Venezuela’s exchange-rate system and price controls.
- Review the status and potential financial effects of the Brazilian litigation and environmental remediation matters.
- Evaluate debt maturities, commercial-paper funding and covenant headroom alongside cash generation, capital spending and dividends.