Clorox Company — FY2011 Form 10-K
Reporting period: Fiscal year ended June 30, 2011 (not calendar 2010 Q4). Unless otherwise noted, amounts are in millions of dollars. The filing describes a consumer and institutional products company with about 8,100 employees and sales in more than 100 countries.
Business context and results
Clorox reported four segments: Cleaning, Household, Lifestyle and International. Its portfolio includes bleach and cleaning products, trash bags, charcoal, cat litter, food products, water filtration and natural personal care. About 79% of FY2011 sales came from the U.S.; Wal-Mart and affiliates represented 26% of consolidated sales.
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales | $5,231 | $5,234 | Down $3, approximately flat |
| Continuing-operations pretax earnings | $563 | $805 | Down $242 |
| Diluted EPS from continuing operations | $2.07 | Not provided in supplied text | FY2011 includes a $1.86-per-share impairment impact |
Segment sales: Cleaning $1,619 (prior year $1,624); Household $1,611 ($1,663); Lifestyle $883 ($864); International $1,118 ($1,083). Lifestyle reported a pretax loss of $1, including a $258 non-cash goodwill impairment for Burt’s Bees. FY2010 segment figures reflect the Auto Businesses as assets held for sale; Clorox sold its global auto care businesses, which were no longer included in the Cleaning and International segments.
Financial position, liquidity and capital allocation
- Debt was $2.6 billion at June 30, 2011. The filing states that approximately $1.1 billion of additional debt capacity was available under restrictive covenants, subject to circumstances and credit considerations.
- Corporate identifiable assets included $259 of cash and cash equivalents, versus $87 in FY2010; the supplied text does not provide a clear consolidated cash balance, operating cash flow, free cash flow, margins or complete liquidity measures.
- Environmental remediation liabilities were $15 at June 30, 2011, compared with $16 a year earlier. Management said additional exposure, if any, could not be estimated.
- Clorox repurchased about 2.66 million shares in FY2011’s fourth quarter at an average $68.85 per share. A new $750 million repurchase authorization was approved in May 2011.
Changes, outlook and risks
- Sales were nearly unchanged year over year, while pretax earnings fell substantially. The filing attributes the Lifestyle segment’s FY2011 result in part to the Burt’s Bees goodwill impairment; it does not provide enough information here to reconcile the total earnings decline fully.
- Management anticipated broad price increases across its global portfolio in FY2012 and significant commodity and other cost increases. Price actions could slow sales growth or reduce volume; failure to offset input-cost inflation through pricing or savings could pressure profits.
- Raw-material costs were volatile and rising in FY2011. Key exposures include resin, chlor-alkali, bleach inputs, energy, shipping and agricultural commodities. Supply contracts and derivatives provide some mitigation, but do not eliminate exposure.
- Other significant risks include intense competition and private-label products, concentrated retail customers, supplier and supply-chain disruptions, foreign-exchange and political risks (particularly Venezuela and Argentina), regulation, environmental and product-liability claims, and substantial indebtedness.
- In July 2011, after year-end, Carl Icahn and affiliates made an unsolicited conditional acquisition proposal and announced a proxy contest. Clorox warned that related disruption, uncertainty or a change in control could affect operations, personnel, stock price and debt obligations.
- Management said continuing cost savings, innovation and international growth were strategic priorities. The company was also implementing supply-chain restructuring and information-technology upgrades; execution and disruption risks remain.
Important facts for investors to verify
- Review the complete financial statements and MD&A for net income, cash flows, operating margins, cash and debt maturities, and the full earnings decline bridge; those figures are not clear in the supplied filing text.
- Assess whether FY2012 price increases and cost savings can offset commodity inflation without material volume or share losses.
- Verify the underlying performance and impairment assumptions for Burt’s Bees and other acquired businesses.
- Monitor leverage, covenant capacity, credit ratings, repurchases and dividends alongside cash generation.
- Follow developments in the Icahn proposal and proxy contest, as well as environmental remediation estimates and international currency restrictions.