Clorox, the household detergent-producer, reported fourth quarter results which beat analyst forecasts thanks to strong sales of cleaning goods and disinfecting products.
Net Sales improved 22% to $1.98 billion from the same quarter a year ago. Gross margins expanded marginally q-o-q to 46.8% thanks to costs savings and volume growth, but was restrained due to lower selling prices and higher logistics and manufacturing costs. The company experienced higher sales across all four segments y-o-y with Health and Wellness (+33%), Household (+17%), Lifestyle (+16%), and International (+12%).
EBIT rose 32.6% to $419 million, and EBIT margins expanded quarter-on-quarter by 3.1% to 21.1%. Net profit came in at $310 million, or $2.41 per share, a 29% improvement y-o-y.
The company provided muted guidance, projecting that sales would be flat or grow slightly in the current fiscal year (2021) and that profit could either slip or increase by mid-single digits. Clorox products are already found in 9 out of 10 US homes so the company is spending on advertising in international markets to broaden its appeal. Clorox also announced company president Linda Rendle, as the new chief executive, effective from mid-September. Rendle is 42 years old and has been with the company for 17 years. Current CEO Benno Dorer (56) will continue to serve as executive chairman.
Guidance was conservative, given the current demand for cleaning products by households and businesses (as well as health supplements), albeit fair in an environment of uncertainty. The company boasted an impressive rise in free cash flows of over 19% to $1.3 billion for fiscal 2020. It has also grown FCF, annually by double digits, over the past 5 years and margins have been stable. The Return on Invested Capital (ROIC) of 30% compares favourably to industry peers at 17%. Clorox has a history of dividend growth, and is currently yielding 2%. It also returns cash to shareholders, having bought back $4 billion worth of stock over the last 5 years. It does have substantial debt, however, at over $3 billion and is targeting a Net Debt to EBIT of 2.0 – 2.5x from around 3x currently. The stock is up more than 50% this year and there could be significant downside risk to the share price should Covid-19 begin to dissipate and buying patterns normalize. The company is relatively expensive at 32x earnings but is a quality counter whose products are a mainstay of the American household.