The Market's Got the Magic of Clorox Bleach

I always think of Clorox (NYSE: CLX) as a decent bellwether for consumer-goods products. Its product lineup is about as wide as the assortment of goods featured on The Price Is Right (bleach, cat litter, barbecue sauce, trash bags ... it doesn't get more eclectic than that).

As with many of its consumer-goods rivals, such as Kraft (NYSE: KFT), Procter & Gamble (NYSE: PG) and Church & Dwight (NYSE: CHD), random sampling has held up pretty well so far for Clorox. The company's third-quarter results were received with open arms by the market, though the overall sentiment seemed to be one of relief rather than celebration.

Reported top-line growth of 9% exaggerated the company's core performance. Stripped of foreign exchange and the impact of acquisitions, revenue increased just 3% in the quarter. Restructuring charges and commodities took a 350-basis-point bite out of the company's gross margin. That's a pretty steep hit, and a far cry from a year ago when the company actually improved the margin. The higher costs fell to the bottom line, and earnings per share, excluding one-time items, dropped 16% to $0.84 per share.

While Clorox is clearly trying to expand its international presence, the segment represents just 16% of net sales and less than 10% of overall operating profit. The international segment has not exactly been tearing up the track, either. Although international sales increased 14%, operating profit actually declined 16%. The operations are obviously small, and many are likely in investment mode. Still, in this environment, I'd prefer a company with more established international operations. Procter & Gamble is one example; there's also PepsiCo (NYSE: PEP), which has thriving international operations with lots of potential margin expansion on the horizon, and Avon (NYSE: AVP) which has solid positions in several high-growth markets.

I think CEO Don Knauss has Clorox on the right path, but I still don't find its product lineup or overall growth prospects all that compelling. I also doubt whether Burt's Bees products will transform the company in the way management seems to anticipate -- I swear that every time anyone from Clorox is interviewed, every other word out of their mouth is either "Burt" or "Bees." It's understandable that management would focus on the category, given its higher growth rate compared some of the company's other products, but I don't expect the new products to be a miracle profit driver.