This Old Company Finds New Ways to Grow

Slow and steady wins the race. This is especially the case when it comes to investing. Sure, you can an invest in companies that will see stock appreciation north of 200% in less than one year, but it's extremely rare for that type of growth to be sustainable. That's why so many experienced and savvy investors prefer to stick with companies that are proven long-term winners, such as Clorox (NYSE: CLX  ) .

A Unique Approach
Clorox might sound like a boring company, but that's not the case whatsoever. Clorox is unique amongst most of its peers because it looks for external assistance for innovation.

Clorox still innovates from within, and looking for ideas from external sources isn't a negative--in fact, it's logical. If more people are contributing, then the odds of finding a high-potential ideas increases. Clorox looks for innovative ideas from universities, inventors, and even through online idea contests.

Whether you agree with Clorox's approach or not, you can't deny that Clorox consistently finds ways to grow and reward its shareholders. Clorox's highly diversified portfolio helps a great deal. It owns cleaning brands Clorox, Liquid-Plumr, Pine-Sol, S.O.S, and Tilex; household brands Kingsford, Glad, and Scoop Away; lifestyle brands Brita, Burt's Bees, and Hidden Valley; professional brands Clorox Healthcare and Aplicare; and international brands Ayudin, Chux, and Poett.

There's a pretty good chance that you're familiar with some of the brand names above. However, what you might not know is that nearly 90% of Clorox's brand portfolio represents No. 1 and No. 2 market-leading positions. When a company has such a stronghold on its markets, it can only fail with poor leadership. And based on consistent results delivered by Clorox, you shouldn't have to worry about that here.

Past and Future
Clorox plans on increasing its marketing and innovation in FY 2014. Based on these goals, Clorox expects FY 2014 sales growth of 2%-4%. Clorox has cited increased competition in laundry additives and disinfectant wipes as a potential threat, but the company believes that its product innovation will offset this threat.

For FY 2014, diluted earnings per share are expected to come in between $4.55 and $4.70. If diluted EPS comes in at the low end of the range, then Wall Street will likely overreact to the news and the stock will sell off. If this happens, then you might want to consider it an opportunity to add shares -- $4.55 would still be an improvement over $4.30 seen in 2012.

Looking at the bigger picture, Clorox is aiming for 3%-5% annual sales growth and +25 to +50 bps margin expansion (before interest and taxes.) 

Looking backward and forward, Clorox's cost-saving program has delivered annual savings of at least $100 million per year since 2003, and this trend is expected to continue.

One negative for Clorox was a 3% decline in volume in the fourth quarter, but this was made up for in cost savings and price increases, which was evidenced by a gross margin increase to 44% versus 42.7% in the year-ago quarter.

 

Other Cleaning Options
Clorox is an established and respected brand, but so are Colgate-Palmolive (NYSE: CL  ) and Procter & Gamble (NYSE: PG  ) .

Colgate-Palmolive's brand portfolio includes Palmolive, Irish Spring, Speed Stick, Ajax, and Mennen. Colgate-Palmolive has had to contend with promotions and cost inflation, but the company doesn't expect these trends to continue. And like Clorox, Colgate-Palmolive is highly focused on cutting costs and the bottom line.

Procter & Gamble has one of the most impressive and diversified brand portfolios in the world. These brands include Head & Shoulders, Pantene, Gillette, Mach 3, Crest, Oral-B, Vicks, Dawn, Downy, Duracell, Febreeze, Tide, Bounty, Pampers, and more. Procter & Gamble is constantly innovating, and regardless of management changes and recessions, the company's brand strength and diversification continuously lead to quality returns for investors.

All three of these companies should present quality long-term investment opportunities. Since all three companies are focused on the bottom line, let's take a look at how they have performed on the bottom line over the past five years:

CLX EPS Diluted TTM Chart

Clorox EPS diluted (trailing-12 months) data by YCharts

Let's take a look at the top line as well:

CLX Revenue TTM Chart

Clorox revenue (trailing-12 months) data by YCharts

Also consider dividends. Clorox is currently yielding 3.4%, higher than Colgate-Palmolive and Procter & Gamble at 2.3% and 3%, respectively.

The Bottom Line
All three aforementioned companies are long-term winners. The biggest concern for Clorox is declining volume, which indicates weakening demand due to a value-conscious consumer. However, Clorox's innovative process should lead to top-line growth. Additionally, Clorox has always been good at growing the bottom line and returning excess capital to shareholders.

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