What happened
Shares of Clorox (CLX -0.19%), an iconic consumer staples company best known for its namesake bleach, fell sharply at the open of trading on Feb. 4, quickly losing 13% of its value. The big news came out after the close on Feb. 3, when the company reported earnings. Investors were not pleased and, perhaps, for good reason.
So what
On the top line, Clorox reported revenue of $1.7 billion in the fiscal second quarter of 2022, down 8% from the same quarter of the previous year. Although sales were up 19% from the fiscal second quarter of 2019, which is hard to complain about, investors are likely worried that the spike in demand from the coronavirus is fading. That's not unreasonable at all, noting that organic sales also fell 8%. Analysts appeared to be expecting the year-over-year sales decline, however, given that Clorox's revenue was roughly in line with Wall Street's consensus estimate. Still, the broader sales trend issue sets a somewhat negative stage for earnings per share, which is where the news was really bad.
Image source: Getty Images.
Clorox reported adjusted earnings of $0.66 per share in the fiscal second quarter of 2022. That was down from $2.03 in the prior year, or a massive 67% drop. There's no way to sugarcoat that decline -- it's not good. Worse, analysts had been looking for $0.78 per share. So, basically, there was an expectation that the quarter would be relatively weak, but not as weak as it was. Investors don't like it when companies miss analyst estimates by such wide margins. A big factor in the earnings decline, according to management, was "higher manufacturing & logistics and commodity costs," which pushed gross margin down a massive 12.4 percentage points. That's not a typo; gross margin declined from 45% a year ago to 33% in the just ended quarter. Inflation and supply chain troubles are hot-button issues for investors, so it's hardly shocking there was a negative take on Clorox's results.
Now what
If only the negative news were done here. Looking forward, Clorox explained that "cost pressures are expected to continue through fiscal year 2022." So there's no end in sight to this material headwind just yet. And while the company stated that it believed it has the "right strategy" to handle the hit, this quarter's earnings shortfall appears to have investors worried that it may not. All in, the glass-half-empty view on Wall Street today isn't a particularly shocking development.
