First, that number excludes a hefty goodwill writedown for the company's Burt's Bees business. It's a good business and one of the fastest-growing areas for Clorox, but it appears -- particularly in light of the recession -- that Clorox may have simply paid too much for it; thus the $258 million goodwill hit. On the flip side, the results also back out a $177 million gain from the sale of the company's auto-care business and $7 million in earnings from that segment.
After all that maneuvering, you do get to an adjusted earnings number that topped Wall Street.
It was a good quarter then?
Not quite. Analysts may have underestimated the company's bottom line, but on that adjusted basis, Clorox's EPS was up just 3% from last year. And that was actually the good news, as total company sales dropped 3% year over year.
Fortunately, it doesn't look like this bad quarter will mean future bad quarters. Part of the revenue decline was because sales of bleach and disinfectant wipes soared last year as the H1N1 virus was freaking everyone out. The company was also pinched by the currency-devaluation in Venezuela, which we also saw dragging down results at Colgate-Palmolive
Past those one-time speed bumps, though, it's clear that consumers are still struggling. The company made particular mention of the fact that its products saw strong performance in "value-oriented retail channels like dollar and club" -- which means low-price havens like Costco
That's the bad news
Clorox's management is staying optimistic, though. During the conference call, management cited what appear to be some positive sales trends in many of its products, particularly premium-price products such as Burt's Bees and Hidden Valley Ranch. Then there's the fact that in the final half of the year the company won't have the Venezuela currency debacle or the H1N1 bump from last year dragging down year-over-year comparisons. This could all add up to the next two quarters looking markedly better than the first two of the fiscal year.
Of course, whether we're talking about Clorox, Colgate, Procter & Gamble
As for Clorox, it may not be the prettiest stock in the consumer staples space, but its smaller size, product mix, and cash-flow generation still put its stock toward the top of my list for the industry. That said, I'll be looking for proof that management's optimism is actually panning out in the quarters ahead.
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