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What You Should Make of Clorox Stock's 11% Drop Today

By Neha Chamaria – Aug 3, 2021 at 1:31PM

Key Points

  • The coronavirus pandemic sent sales for Clorox's products soaring.
  • Demand is slipping now that the economy is reopening.
  • Clorox's outlook disappoints, but it's still a good Dividend Aristocrat to own for the long term.

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The company's sales are dropping faster than expected, but that shouldn't worry you as an investor.

What happened

Shares of Clorox (CLX 0.83%) tanked on Tuesday, and were down 11.4% as of 11:40 a.m. EDT. After some quarters of stupendous growth in sales of its cleaning products driven by the coronavirus pandemic, the market feared whether the company would be able to sustain its growth momentum as vaccinations roll out and economies reopen. Clorox confirmed investors' worst fears this morning with its fourth-quarter numbers and outlook for fiscal 2022. They're disappointing, to say the least.

So what

Clorox's sales declined 9% year over year during its fourth quarter, which runs through June 30. Management cited two reasons for the sales decline: lower shipments from peak pandemic levels and a rapid decline in its health and wellness segment sales. The second bit is what investors feared the most.

Clorox's health and wellness segment, also its largest, sells cleaning and home products as well as supplements, among other things. Demand for disinfecting wipes and bleach products sold mainly under its namesake brand shot up as COVID-19 struck, helping Clorox deliver some stellar quarters.

Person wearing a mask wiping a shopping cart with disinfecting wipes at a supermarket.

Image source: Getty Images.

Clorox's second-quarter numbers prove how quickly that demand has faded, and how badly it's hurting the company's bottom line -- its health and wellness segment sales slumped 17%, resulting in a loss before tax of $10 million versus income of $252 million in the year-ago period. Although sales in three of Clorox's four segments declined, the health and wellness segment was hit the hardest and was primarily responsible for the 68% drop in the company's overall earnings per share.

CEO Linda Rendle confirmed the sharp reversal in demand, saying, "Fiscal year 2021 was an extraordinary year for Clorox, with the pandemic putting us through the test of volatility, including rapid changes in consumer demand and inflationary pressure, which is reflected in our fourth quarter results."

Given that consensus estimates called for a much smaller 3% decline in Clorox's fourth-quarter sales, the stock's slump this morning isn't surprising. Worse yet, Clorox's 2022 outlook leaves much to be desired.

Now what

Here's what Clorox expects to see in 2022:

  • Sales down 2% to 6%.
  • Gross margin down 300 to 400 basis points.
  • EPS according to generally accepted accounting principles (GAAP) down 4% to 9%.

In short, Clorox's high-growth days may already be over. That said, fiscal 2021 was undeniably an exceptional year and that growth pace couldn't have lasted forever anyway. In fact, long-term investors could even find value in Clorox stock at current prices, considering how Clorox grew steadily even before the pandemic and is a Dividend Aristocrat.

Neha Chamaria 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.

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