Grab the Kingsford charcoal, slather on some Burt's Bees sunscreen, and don’t forget the Hidden Valley Ranch and veggies. With these top brands in its lineup, Clorox
Beyond the brands mentioned above, and of course, its namesake bleach products, Clorox's consumer reach extends to popular car-care products, cat litter, and that money-saving water pitcher in your fridge -- Brita. Sticking to a motif of fresh, clean, and tidy (with the notable exception of charcoal!) has served Clorox well. Its brands are market-share leaders in seven of the nine largest categories in which it competes.
And management isn’t sitting on its hands during this recession. It recently updated the company's strategic plan to focus on value and affordability -- a move that coincided with a 9% dividend hike and a forecast of 9% earnings-per-share growth for fiscal year 2010, which begins at the end of June.
As sparkling as Clorox's outlook appears, I do have modest concerns. Having shed the private-label division of its Glad food and trash bag business, Clorox's prospects are now tied exclusively to premium brands. Impressively, the company has convinced consumers to trade up to certain premium products, but in other areas, it's suffered small volume losses to private-label goods. Also, management's forward financial estimates assume greater consumer strength in 2010. I fear that expectation may eventually require a Clorox bleach pen and a moderate rewrite.
On the other hand, the company does have opportunities to leverage sales, both because of and in spite of the economy. During recessionary times, Clorox benefits from the eat-at-home trend via its Hidden Valley salad dressings. Notably, shoppers favor Hidden Valley 2 to 1 over Kraft's
In the longer term, Clorox should reap rewards from its multicultural marketing initiatives and its focus on environmental sustainability. On the latter point, its Green Works cleaning products have been a huge success, capturing nearly 50% market share in the natural segment. Selling sustainability is a growing strategy among consumer-staples companies -- Reynolds Wrap, the brand formerly owned by Alcoa
The one unpredictable threat to Clorox's earnings is commodity prices. Raw materials and packaging accounted for 60% of Clorox's cost of goods in fiscal year 2008. That means that when companies such as Occidental
All in all, I believe that risks are well accounted for at current share prices and below. The 3.3% dividend yield rests on a sustainable 49% payout ratio, and the company's PEG ratio lags those of competitors Colgate-Palmolive
Clean up with further Foolishness: