I last recommended that Fools take a look at consumer-staples company Clorox
As Exhibit A, I submit the company's fiscal-2010 first-quarter results. Registering $1.4 billion, sales declined 1% versus brisk top-line growth in the year-ago period. Sequentially, sales flopped almost 7%. Unfavorable product mix and currency rates, along with a weak market for the company's premium-priced Glad-brand storage and trash bags, contributed to the humdrum performance.
Earnings per share, however, told a vastly different story. Powered by lower commodity costs, annual efficiency initiatives, and price increases, EPS leapt from $0.90 in the fiscal-2009 quarter to $1.11. Yep, that's a 23% gain. In addition, management said that swine-flu fears -- which boosted sales of the namesake line of household disinfectants -- helped fatten the company's profit.
That puts Clorox in the company of other H1N1 beneficiaries, which run the gamut from vaccine-makers Novartis
In the case of Clorox, the market's hardly awash in enthusiasm. By the close of trading, shares had risen less than a third of a percent in response to quarterly results. That compares to a 1.6% daily gain for Colgate-Palmolive
What gives?
I can't divine Mr. Market's exact motivations (although you'll be the first to know should I develop that unique ability), but I'd say that it comes down to product exposure. In fiscal 2009, the cat litter, laundry, charcoal, and trash bag categories pitched in 43% of Clorox's net sales. However, compared to other areas of the company's portfolio, it's these very categories that are most susceptible to consumer trade-down and private label penetration.
That vulnerability came through in Clorox's recent results: Management informed conference-call listeners that overall company market share was down slightly for the quarter, and cited particular challenges in the Glad and laundry businesses.
Investors, it appears, remain spooked, even as the company raised full-year EPS guidance from a range of $4.00-$4.15 to $4.05-$4.20.
It's notable that Clorox posted 1% volume growth following a volume loss in the prior quarter. Nonetheless, I don’t believe results give investors anything to be wildly excited about, especially since rising commodity costs will likely prevent the recent EPS jump from becoming anything more than a one-hit wonder. However, in an arguably overbought market that could be set to fall, shares also won't be cut in half overnight.
And should we actually be treated to that stronger economy that many stocks have already priced in, Clorox shares have ample room to run.
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