Clorox (NYSE:CLX) is set to report fiscal 2022 first-quarter results on Nov. 1. Shareholders will be hoping for a lower-than-expected fall in sales when the company releases its data.
The company experienced a surge in revenue at the onset of the pandemic as customers stocked up on its cleaning products. However, as more folks are getting vaccinated, the fear of contracting COVID-19 has decreased to some degree, and people are buying less of Clorox's cleaning products compared to last year.
How is this macroeconomic change affecting this consumer staples stock and has Clorox management found a way to adjust to it? Let's preview what might be reported on Monday.
Lower sales and higher costs on the horizon
Importantly, cleaning products represented 30% of Clorox's overall sales in fiscal 2021. Those figures are certainly inflated because of the coronavirus pandemic and are likely to represent a lower share in fiscal 2022. The pandemic has been a tailwind across two years for Clorox, boosting 2020 sales by 8.2% and 2021 sales by 9.2%. Before those two years, Clorox's highest revenue growth rate in the last decade was 4.5% in 2012.
Management is forecasting an overall sales decrease in fiscal 2022 of between 2% and 6%. To make matters worse, supply chain disruptions are commonplace right now. Consumer demand for products remains high while fewer people want to work with a deadly virus circulating. The combination puts pressure on supplies and increases prices on commodities and wages, adversely affecting Clorox's gross profit margin by 780 basis points in its most recent quarter. The forces of decreasing sales and rising costs have management forecasting a 21% to 26% decrease in earnings per share (EPS) for the year.
The majority of the headwind is likely to fall in the first two quarters of its fiscal year. Here's how management explained it in Clorox's Q4 earnings release: "Clorox's 2022 fiscal year sales are projected to be down 2% to 6%, reflecting lower sales in the first half -- from the high single digits to low double digits -- due to comparisons to 27% sales growth in the first half of fiscal year 2021. In the second half of the fiscal year, sales are expected to normalize toward the lower end of the company's long-term sales growth target of 3% to 5%."
The same is valid on the cost side. Management expects the bulk of the pressure from higher costs to come in the first quarter, assuming that prices will normalize in the next few quarters.
The market is pricing in Clorox's negative outlook
Analysts on Wall Street expect Clorox to report revenue of $1.7 billion in Q1 and EPS of $1.03. If Clorox meets the EPS estimate, it would be less than half of the $2.63 EPS it reported in the same quarter last year, consistent with management's expectations of decreasing EPS for the year and the bulk of the losses to be felt early on.
As you can imagine, the market is not thrilled about Clorox's negative outlook on the year ahead. The stock price is down 20% year to date. However, since the bar is so low, management has the potential to change the sentiment when it reports earnings on Nov. 1.