Clorox (CLX) Q4 EPS Jumps 58%

Clorox (CLX 0.39%), a household products maker known for bleach, cleaning supplies, trash bags, and food products, released its fiscal fourth-quarter results on July 31, 2025. The highlight was a surge in adjusted earnings per share (EPS) to $2.87, well above the analyst consensus of $2.20. Revenue (GAAP) was $1.99 billion, beating expectations of $1.93 billion. However, this outperformance was driven mostly by a temporary boost from "incremental ERP shipments" ahead of a digital system upgrade—an effect the company does not expect to repeat. Management’s outlook for FY2026 calls for lower sales and profits as prior gains are expected to reverse. Despite a strong margin and cash flow performance, management flagged caution due to ongoing cost and consumer headwinds, making the past quarter a positive surprise with underlying challenges for the coming year.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q3 2025 earnings report.

Company Overview and Current Focus

Clorox is a consumer products manufacturer whose brands include household cleaners, disinfecting wipes, bleach, trash bags, grilling products, cat litter, and food condiments. About 80% of sales come from brands ranked No. 1 or No. 2 in market share within their categories, based on FY2024 results. Core brand strength and consumer loyalty support its pricing power, especially in competitive U.S. grocery and retail channels.

The company is currently prioritizing brand equity, robust supply chain management, product innovation, and digital transformation. Protecting trademarks, defending market share, and responding to consumer behaviors are critical. Technology investments—including a new enterprise resource planning (ERP) system—rank high as Clorox seeks efficiency and data-driven supply chain improvements. Corporate responsibility and sustainability, through efforts such as reducing waste and emissions, also remain key in its strategy.

Quarterly Highlights and Key Developments

The company significantly exceeded earnings expectations on a non-GAAP basis, but much of that gain came from one-time “incremental ERP shipments.” Clorox pulled forward shipments in anticipation of a new digital management system (ERP transition). Management estimated these shipments alone added $0.85 to $0.95 to quarterly adjusted EPS and contributed about 13 to 14 percentage points to sales growth—well above normal trends and not expected to recur. Organic sales (non-GAAP) increased 8%, with all reported sales growth coming from ERP-related activity, suggesting flat or slightly negative core business trends once that effect is excluded.

Gross margin was 46.5%, essentially flat versus the year-ago quarter, primarily due to higher volume and cost savings, offset by higher manufacturing and logistics costs and trade promotion spending. Incremental ERP shipments contributed about 150 basis points of benefit to gross margin. On the supply side, the company continued to see cost savings from improved operations and exited lower-margin businesses, bolstering margins. Operating cash flow (GAAP) increased by 41% in FY2025, reaching $981 million, thanks to inventory drawdown and prudent management. Cash and equivalents declined to $167 million as of June 30, 2025.

Segment performance reflected these themes. Net sales in the Health & Wellness (cleaning products and professional solutions) segment grew 14%, with higher volume mainly driven by incremental ERP shipments. Adjusted EBIT—a metric referring to segment earnings before interest and tax, adjusted for one-off or unusual costs—increased by 20% in this division. The Household segment, which includes trash bags (Glad), cat litter (Fresh Step and Scoop Away), and grilling products (Kingsford), saw net sales grow 7%. EBIT in this segment jumped 59%, again inflated by the one-time volume surge. Lifestyle (food, water filtration, and natural personal care, including Burt’s Bees and Hidden Valley Ranch) net sales rose 3%, reflecting innovation and advertising reductions. International sales (GAAP) dipped by 1%, as currency and geographic mix issues offset local organic growth.

Innovation across product lines remained a priority. New launches as part of the IGNITE pipeline included Glad ForceFlex MaxStrength trash bags, Clorox Scentiva Bleach—an enhanced bleach product line with premium scents—Fresh Step Heavy Duty and Health Monitoring Cat Litter, and multiple new flavors and product expansions in Hidden Valley Ranch salad dressings and Burt’s Bees natural personal care. These products target both value-seeking and premium consumers, defending brand share as shoppers shift between price points but have not yet traded down to private label in large numbers according to management statements.

Digital transformation continued with the U.S. phase of the ERP upgrade, the key driver behind the shipment and profit surprise. Over $570 million invested in digital technology over five years (beginning in FY2022) aims to modernize operations and improve analytics, though this effort has also brought near-term costs and complexity. Management says all one-time gains from ERP shipment timing will reverse in FY2026, creating a headwind for both sales and profit as inventory levels normalize. Additionally, the company faces $100 million in annualized cost pressure from new import tariffs (mainly on packaging and certain raw materials), which begin to take effect in early FY2026 and are likely to weigh on margins unless fully offset by productivity and limited price increases.

Financial Outlook and Considerations for Next Year

Management outlined a notably cautious outlook for fiscal 2026. The company expects net sales (GAAP) to decline 6% to 10% in FY2026. Organic sales (non-GAAP), after excluding the shipment reversal, are projected to fall 5% to 9% in FY2026. Adjusted EPS guidance for FY2026 is $5.95 to $6.30, down 18% to 23%, and management specifically noted a negative $0.85 to $0.95 per share impact tied to the ERP-related shipment timing. Gross margin is expected to compress by 50 to 100 basis points in FY2026, with operating expenses rising in part due to ongoing digital investments. Selling, general, and administrative costs are set to approach 16% of sales—up from pre-ERP levels—while advertising will remain near 11% of sales to defend brand position, according to the FY2026 outlook. No significant changes in tax rate or one-off adjustments outside of these are anticipated for now.

Looking forward, investors will watch how Clorox manages the normalization of retail and supply chain inventories, the impact of tariffs, and ongoing consumer behavior shifts. Persistent promotional competition, especially in the Household segment (Glad trash bags and cat litter), adds pressure to defend shelf position and profitability. While management reaffirms its longer-term belief in the resilience of consumer demand for essential categories, near-term volatility and uncertainty continue. The company’s future performance will likely depend on successful cost-cutting, further innovation, and stability in consumer demand for branded household essentials.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.