Please ensure Javascript is enabled for purposes of website accessibility

Clorox Earnings: 3 Things to Watch

By Demitri Kalogeropoulos – Feb 1, 2020 at 10:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The cleaning products specialist is looking to speed up growth heading into a new fiscal year.

Shareholders of Clorox (CLX -1.23%) completely missed the stock market rally of 2019, with shares edging lower on the year compared with a 29% surge in the S&P 500. That slump came courtesy of weak operating results, with sales declining even as the consumer staples giant notched financial wins in profitability and cash flow.

That mixed performance means investors will be watching for signs that Clorox's new rebound plan is delivering the turnaround that management predicted. Below, we'll look at a few of the metrics that might describe the shifting trend for this popular income investment. Here's what to watch when Clorox reports fiscal 2020 second-quarter earnings on Tuesday, Feb. 4.

A woman mopping the kitchen floor.

Image source: Getty Images.

1. Rebound trends

The clear takeaway from recent earnings reports is that Clorox is struggling to grow its broader portfolio, despite some bright spots among key franchises. The bags and wraps division has been the biggest challenge, with falling demand for Glad trash bags, baggies, and containers diving 14% in Q1 of fiscal 2020 following an 11% drop in the previous quarter. That decline ensured that Clorox's wider organic sales fell 2% in the fiscal first quarter despite a modest increase in its international segment.

CEO Benno Dorer and his executive team weren't surprised by the pullback; they predicted as much in their initial fiscal 2020 outlook. But to meet that forecast, Clorox will need to show improving growth results in the second half of the year. That means investors will be looking for better organic sales and for improving trends in the bags and wraps segment.

2. The finances

Clorox's rebound plan also calls for improving financial strength this year. The good news is that shareholders have more concrete support to go by in this department. Gross profit margin inched higher in fiscal 2019, and cost cuts helped preserve that momentum into early 2020. The company's cash-generating abilities were clear, too, with net operating cash rising to $271 million from $259 million a year ago.

The consumer staples company will need more wins in both the cash flow and profit margin metrics this year in order to continue funding its growth initiatives while still returning cash to shareholders through dividend payments and stock buybacks. Look for management to put particular emphasis on efficiency if sales trends remain slow.

3. The big question

Clorox's first-quarter report showed a 4% sales decline that called into question management's wider forecast of roughly flat revenue in 2020. Executives said at the time that they were confident that operating trends would improve over the next nine months, especially toward the end of the fiscal year.

On Tuesday, that optimistic forecast will be tested by Clorox's actual demand trends over the last few months. The stock's slump since early 2019 suggests investors have low expectations of a sales rebound this year. Still, a downgrade to the outlook could send shares lower if it suggests that management doesn't have the right rebound strategy to push the business back toward Clorox's long-term growth targets of 3% in the context of a steadily rising operating margin.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Clorox Stock Quote
Clorox
CLX
$130.07 (-1.23%) $-1.62

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
338%
 
S&P 500 Returns
108%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.