Clorox: Weak Earnings and Outlook Send Shares Tumbling

Clorox has just released its third-quarter results, so let's find out if now is the time to buy this consumer-products giant.

May 7, 2014 at 10:25AM

Clorox (NYSE:CLX), the company behind global brands such as Burt's Bees, Green Works, and Kingsford, as well as its namesake brand, released its third-quarter results on May 1 and the stock has reacted negatively in the days since then. Let's break down the report and the company's outlook going forward to determine if this decline is our opportunity to buy or if we should go with another consumer-products giant instead, like Kimberly Clark (NYSE:KMB)

Screen Shot

Source: Burt's Bees.

The results are in
Clorox's Q3 results narrowly missed expectations on both the top and bottom lines; here's an overview:

MetricReportedExpected
Earnings per share $1.05 $1.08
Revenue $1.39 billion $1.43 billion

Source: Estimize.

Clorox's earnings per share increased 5% and revenue decreased 1.9% year over year, as the company faced unfavorable foreign exchange rates and higher trade promotions during the quarter. Here's a breakdown of the revenue and volume growth by segment:

SegmentQ3 2014 Revs.Q3 2013 Revs.Rev. GrowthVolume Growth
Cleaning $437 million $454 million (3.7%) (5%)
Household $428 million $413 million 3.6% 5%
Lifestyle $237 million $245 million (3.3%) (1%)

International

$284 million $301 million (5.6%) 1%
Total $1,386 million  $1,413 million (1.9%) (0.5%)

Source: Clorox.

Screen Shot

Source: Green Works.

Clorox's gross profit decreased 2.7% to $579 million and the gross margin took a slight hit, declining 30 basis points to 41.8%. Even with the slight hit to profitability, the net cash provided by operations was $434 million, which allowed Clorox to repurchase approximately 1.5 million shares of its common stock for $130 million; the company also noted that it plans to continue returning excess cash to shareholders through share repurchases and its bountiful 3.2% dividend, which it has increased each year since 1977.

Overall, Clorox's quarter was nothing to write home about and its stock reacted accordingly by falling 1.43% in the trading session that followed. The shares have continued lower in the days since then, but before we decide if this is a buying opportunity, let's take a look at what the company expects going forward.

What will the remainder of the year hold?
In the report, Clorox updated its outlook on the full year of fiscal 2014 and also provided its initial outlook on fiscal 2015; here's a summary of these expectations:

Screen Shot

Source: Clorox.

Fiscal 2014

  • Diluted earnings per share in the range of $4.25-$4.35, compared to $4.31 in fiscal 2013
  • Revenue down slightly from fiscal 2013
  • Flat to 25 basis points of margin expansion
Fiscal 2015
  • Diluted earnings per share in the range of $4.35-$4.50
  • Sales about flat compared to fiscal 2014
  • 25-50 basis points of margin expansion
This is absolutely dismal guidance for both 2014 and 2015, and I believe these were the main factors that sent the shares lower following the report. I believe Clorox has an incredible brand portfolio and is very strong financially, but as investors we want to put our money to work in companies that are growing now and expect substantial growth in the future; Clorox does not fit these criteria today and I believe there are much better options elsewhere. For these reasons, I would avoid an investment in Clorox today and simply monitor it going forward.

Kimberly Clark: The stock to own?
Kimberly Clark, the consumer-products giant behind brands such as Cottonelle, Kleenex, Huggies, and Pull-Ups, released its first-quarter results on April 21 and its shares responded negatively to its report as well; here's a summary of what the company accomplished during the quarter:

MetricReportedExpected
Earnings per share $1.48 $1.47
Revenue $5.28 billion $5.31 billion

Source: Benzinga.

Kimberly Clark's earnings per share were flat and its revenue decreased 0.8% year over year, as global volume and organic sales increased 3% and 4%, respectively. Even though revenue declined, gross profit increased 0.2% to $1.83 billion and operating profit increased 0.4% to $853 million, which was helped by $70 million in cost savings from the company's FORCE program and $10 million in savings from its pulp and tissue restructuring. FORCE stands for "Focused On Reducing Costs Everywhere," as the company aims to become as efficient as possible. The pulp and tissue savings are a result of the company pulling out of the business of manufacturing its tissue products and instead using a third party that can manufacture them for much less. 

Screen Shot

Source: Kimberly Clark.

These strong results allowed Kimberly Clark to repurchase approximately 4.3 million shares of its common stock for $464 million and pay $309 million in dividends during the quarter; this puts it well on pace to accomplish its goal of $1.3 billion-$1.5 billion in share repurchases for the full year. Also, Kimberly Clark reaffirmed its outlook on the full year by calling for earnings per share in the range of $6.00-$6.20, which would represent growth of 4%-7.5% from fiscal 2013.

In summary, it was a phenomenal quarter for Kimberly Clark, but the market reacted by sending the shares 1.42% lower in the trading session that followed. The shares have been relatively flat in the days since then and I think this is a perfect entry point for investors who seek moderate growth and the safety of a 3% dividend, which the company has raised for 42 consecutive years.

The Foolish bottom line
Clorox has just missed on earnings expectations and pointed toward slowed growth for the rest of fiscal 2014 and fiscal 2015. The shares have reacted by falling and the stock now sits nearly 10% below its 52-week high. In many cases, sharp declines in the stocks of blue chip companies are buying opportunities, but I do not believe this is one of those situations. Foolish investors would be wise to steer clear of Clorox for the time being and instead look to Kimberly Clark, which has fallen after a strong quarter and represents a great opportunity right now.

More top dividend stocks for the next decade
The smartest investors know that dividend stocks, like Clorox and Kimberly Clark, simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Kimberly Clark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers