Clorox (CLX -0.69%) is best known for its namesake bleach, which is really just a commodity item. But its product and brand portfolio is surprisingly diverse.
That said, not all the businesses it owns are created equal, and that fact was clearly visible in its fiscal 2023 third-quarter results, thanks to a massive one-time item.
Here's what shareholders and potential investors need to be thinking about.
Odd combinations
Clorox also sells Kingsford charcoal, Burt's Bees lip balms, Fresh Step kitty litter, Glad trash bags, Brita water filters, and Hidden Valley dressings, among many other popular brands. It holds leading market positions in many of the eclectic product categories in which it chooses to compete. Often, the only major competitors it faces are the store brands of the retail outlets it sells through.
Image source: Getty Images.
One of Clorox management's key focuses is innovation. Basically, Clorox tries to boost sales by providing new and improved products and experiences.
That's a tried and true model in the consumer staples space, and one that retailers appreciate, since customers like to buy "new and improved" products. As an example, the company's Kingsford business has been bringing out flavored charcoals to add some pizzazz to the grilling experience.
Considering that it has delivered 46 consecutive years of annual dividend growth, Clorox must have been doing a lot more right than wrong with its business. But bad things do happen from time to time. Take, for example, the $2.92 per share write-down that shareholders got hit with in fiscal Q3, which ended March 31.
Second thoughts
That $2.92 per share write-down was related to a non-cash impairment charge of $445 million tied to Clorox's vitamins, minerals, and supplements business. Effectively, the company looked at the division and decided that its current results don't justify the carrying value of the business.
That's not a good thing because its vitamins group was built up via acquisition. So, in effect, management is saying it overpaid for the acquisitions it made. It's also a statement that the company has had trouble executing in the vitamin space.
What does this mean for investors?
For starters, this is not a huge business for Clorox, so shareholders probably shouldn't get too caught up in the story here. All companies make mistakes. And Clorox has a lot of other businesses that are doing reasonably well and will likely have bigger impacts on the company's long-term performance.
That said, Clorox does have a business that is struggling, and it needs to figure out a way to deal with it. One thing that is happening is that management has chosen to "narrow its focus on core brands." Reading into that a little, the company is putting money behind its best-performing brands. That's a solid decision as it looks to turn performance around.
Another option here is for Clorox to sell the vitamin division, if it can. Writing down the value now will soften the blow if it has to sell its vitamin business at a cheap valuation (which is likely, given its weak performance). There are reports that a sale process is in the works. Getting a few of its core brands performing well beforehand would probably help with a sale.
A small business line that's struggling can be a huge distraction for a management team, so selling it probably wouldn't be such a bad thing.
Not shocking
The big picture for investors, however, should probably be that Clorox is best viewed as a brand manager. That means it will always be buying and selling brands as it looks for long-term growth. Missteps are just a normal part of that process.
At this point, it's working to turn around the vitamins business, which is what you'd expect. Over the long term, if the company can't, it might sell it. Again, that's what you'd expect.
Clorox shareholders should probably pay extra attention to the vitamins unit today, since there are problems in that business. Those could lead to more notable announcements, including the possibility of a sale. But shareholders shouldn't be overly worried that this modest-sized division will upend the company's long-term success.
