What Makes Clorox One of America's Best Companies

The Clorox Company (NYSE: CLX  ) is best-known for its namesake bleach, but chances are you've got more than one Clorox product in your house.

Cleaners like Formula 409, Pine-Sol, and Liquid PlumR, Glad garbage bags, Kingsford charcoal, Hidden Valley dressings, KC Masterpiece sauces, Burt's Bees lip balm and other products, Fresh Step or Scoop Away kitty litter, and Brita water filters aren't just some of the best-selling brands in their categories, they're all part of the Clorox Company. The power of these brands has allowed Clorox to become a "household name" in more ways than one, all while pouring resources into new product innovation and returning plenty of capital to shareholders.

The case for Clorox
Clorox builds lifelong customer loyalty through attractive marketing and superior performance of its products, and the results speak for themselves: 90% of Clorox products rank first or second in market share in their category. Clorox focuses on the consumer experience, innovating constantly to ensure that a Clorox product functions exactly as its end user expects. By meeting and exceeding expectations, Clorox has raised the percentage of its portfolio with strong consumer preference from 34% in 2007 to 48% in 2012.

Just as consumers depend on the reliability of Clorox products, investors like that the company reliably returns capital to shareholders. Clorox is a "Dividend Aristocrat," an elite designation Clorox earned by increasing dividends every year for 35 years. Investors should know, however, that earnings growth hasn't kept pace with dividend growth of late.

The company also aggressively repurchases shares, reducing the share count by about 40% over the past decade. Thanks to the necessity of household goods, Clorox weathered the recession better than most, and was able to significantly outperform the S&P 500 since the depths of the financial crisis in 2008 through 2012.

Clorox's strong financial performance is tied to its move toward embracing sustainability. Products with improved sustainability claims accounted for 40% of sales growth between 2007 and 2012, while strong reductions in water and energy consumption and waste and greenhouse gas emissions saved about $15 million annually in operations.

Clorox also holds that an engaged and diverse work force is important to its financial performance, driving innovation and consumer satisfaction. Employee engagement, as measured by a third party, reached 88% in 2012, compared to a corporate average of 70%. Work force diversity at Clorox does exceeds that of U.S. businesses as a whole, though only barely so in management roles.

One thing to be mindful of, Clorox has been accused of "green-washing," which means talking a lot about sustainability as a tool to market its products rather than taking real action to protect people or the planet. Competing natural cleaning product producers like Method and Seventh Generation don't have any conventional cleaners in their portfolios, while Clorox, with leading products in conventional categories, can't be said to be devoted to the natural cause.

In 2008, competitor SC Johnson brought a complaint before the Council of Better Business Bureaus' National Advertising Division, charging that Clorox misled consumers with a claim that its Green Works cleaners worked as well as traditional cleaners. The NAD sided against Clorox, and the company agreed to modify some of its product claims.

Critics also point out that Clorox still tests products on animals, though this practice has been greatly reduced and the company claims to be working toward eliminating it.

Foolish bottom line
Clorox has worked hard to build a very valuable family of brands, and its stewardship of shareholder capital and efforts to embrace sustainability deserve recognition. Growth might be too slow to meet heady market expectations, however, and the company has more work to do in the area of sustainability.

Click here to read about the rest of The 25 Best Companies in America.

linkEditor's note: This article has been updated to more specifically relate the involvement of the Council of Better Business Bureaus' National Advertising Division.

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