At a glance, investors waiting for household products maker Clorox
For the quarter, sales rose 2% over the year-ago figure, to $947 million. (Revenues were up 3%, excluding divestitures.) At $109 million, net income jumped 28% year over year, but that includes a $30 million charge associated with its Argentina business, a gain on a property sale, adjustments for the closeout of trade-promotion programs, and income from discontinued Brazilian operations.
Yes, the results were reported as having beat Street expectations, but the numbers should be examined closely. When taking the temperature of a business, one must always be careful not to compare apples to oranges.
Clorox managed to increase sales, which is good news since sales, profits, and gross margins fell year over year in Q1. And while you'd expect cleaning and food storage products to sell during the holidays when entertaining and cooking are the rage, this growth nevertheless suggests that retailers are happy with its trade promotions. Gross margins were lower than in 2002, but selling and administrative expense, advertising costs, and R&D likewise ate up smaller proportions of sales.
Clorox's has climbed gradually over the past 12 months but has failed to outpace the S&P 500 despite the company' persistently strong cash flows. It's not difficult to understand why. There's uncertainty on at least three fronts:
There is the underwhelming income statement. There's the possibility that Clorox will have to ante up around $200 million in back taxes, thanks to an IRS audit of an investment fund for which it is a limited partner. Lastly, there are concerns over what happens to the considerable stake in Clorox that Germany's Henkel may sell to fund its acquisition of Dial
All could work themselves out, but those are three strikes Clorox will have to overcome.
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Dave Marino-Nachison doesn't own shares of Clorox or Dial. He can be reached via email.