Like many other household-goods manufacturers, Clorox (NYSE:CLX) is finding itself stuck between a rock and a hard place: the seemingly unending high costs for essential inputs like energy, plastics, resins, and other chemical building blocks and the fear of alienating consumers by having to raise prices.
On the first score, Hurricane Katrina has not helped. Unlike Procter & Gamble (NYSE:PG), which has largely kept a stiff upper lip, Clorox is finding that higher post-Katrina prices and shortages of some materials are going to take a bite out of its results. Though the current quarter (the company's fiscal first quarter) will be fine, the company did lower guidance for the next quarter and the year.
It looks as though Clorox is going to risk losing some sales in an attempt to mitigate the higher production costs. The company will be raising prices on about 40% of its portfolio, and the price hikes should go into effect at the turn of the year. That puts a damper on the notion that inflation isn't a problem. Here's a real-life example of higher gas and chemical prices being reflected in higher consumer prices.
It should be noted, though, that Clorox won't be passing on all of its added costs -- hence the lower full fiscal-year guidance. This is where the company's high margins will help. Unrecouped increases in raw-material prices will chew away at the margins, but the company will still be profitable and cash-flow positive.
Of course, Clorox isn't alone in blaming Katrina for its woes. McCormick (NYSE:MKC) passed the buck her way, as have companies ranging from Tempur-Pedic (NYSE:TPX) to Avon (NYSE:AVP). Funny, then, how Procter & Gamble is keeping it together, especially when it had to deal with the problems in its coffee business that came about because of the hurricane.
I'm not suggesting that Clorox is trying to pull a fast one. I really do believe that the company is getting squeezed by shortages and much higher production costs. As for the stock, it's not looking too expensive relative to past levels. But I wouldn't go so far as to say that it's a screaming bargain, either.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
