Clorox (NYSE:CLX) turned in fiscal first-quarter earnings today that -- while meeting management's guidance -- underscore a rather tough trailing 12 months.
The maker of bleach and cleaning products, Glad bags, Kingsford charcoal briquets, and other consumer goods earned $0.60 per share from continuing operations, which was 15% lower than last year. Sales of $1.05 billion were flat, yet free cash flow fell off 40% to $101 million. What's more, gross margins dropped 4.4% due primarily to new-product costs and higher raw materials prices.
The drop in earnings despite flat sales may seem somewhat surprising, given the company's pledge to cut costs at every corner. But the good news here is that research and development expenditures jumped 32%, and spending on trade promotions increased as well. Clorox expects these investments to pay off in the form of double-digit earnings growth for all of fiscal 2004, and a 3% to 5% increase in sales and volume.
If true, the stock is trading at about 18.5 times full-year 2004 earnings. However, that's not much better than the current trailing P/E of 20, and the price-to-free cash flow multiple -- a truer indicator of value -- is an even less appealing 25.
Though Clorox is a solid company that has outperformed the market over the last few years, its current stock price offers no deep value.
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