If you check your laundry room, there's a pretty good chance that there is a bottle of Clorox (NYSE:CLX) bleach in there somewhere. So too with Glad trash bags, Kingsford Charcoal, or Hidden Valley salad dressings elsewhere in your house. That is both Clorox's boon and bane -- when people already own a lot of your products, growth can be a challenge.
Fortunately, Clorox is meeting that challenge to some extent. For the December quarter, Clorox posted just under 9% growth in revenue with an 8% increase in volumes shipped. Despite higher prices for chemicals, resins, and other inputs, gross margin actually improved by 40 basis points, and overall continuing operating margins improved by more than 2.6% from the year-ago period.
Boosted by Latin America, the company's overseas business grew 16%, with a 12% increase in volumes. Looking ahead, this Fool believes that Clorox needs to exploit this overseas opportunity as much as possible. The U.S. market for household disposables isn't going to be getting any easier -- competitors such as Colgate-Palmolive (NYSE:CL), Procter & Gamble (NYSE:PG), and S.C. Johnson are all fighting for shelf space, and shelf owners such as Wal-Mart (NYSE:WMT) can also put the squeeze on growth and profitability.
Although Clorox did not provide a cash flow statement in its report (boo! hiss!), it did state that cash flows from operations were $189 million for the quarter -- just ahead of last year's $188 million. Assuming a similar level of capital spending, the company has generated roughly $816 million in free cash flow over the past 12 months.
To my mind, Clorox is a Goldilocks stock -- not too hot, not too cold. Although its margins are on par with Colgate-Palmolive and Procter & Gamble, growth seems to be a bit of a challenge; management is forecasting only about 3% to 5% growth in the near term. By the same token, the company has a double-digit return on assets, a reasonably good history of dividend payment, and a moderate enterprise value-to-free cash flow ratio of about 16.
As it sits today, Clorox is a dependable (if boring) company. While investors looking for a big-cap stalwart to anchor part of their portfolio might want to look at more exciting names like Procter & Gamble or Johnson & Johnson (NYSE:JNJ), Clorox deserves some consideration as well.
Fool contributor Stephen Simpson, a chartered financial analyst, owns shares of Johnson & Johnson.
