Not Terribly Exciting, But Not Bad Either
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
For years investors have watched large conglomerates like Clorox (NYSE: CLX), Colgate-Palmolive (NYSE: CL), and Procter & Gamble (NYSE: PG) dominate their respective fields. However, as economic issues increased over the last several years, many consumers have tried other brands to try and save money. I've made the argument before that this time it could be different for some of these companies. Many people believe that as the economy improves consumers will switch back to their favorite name brands, but if what customers have been using is cheaper and satisfies the need, there won't be a reason to switch. The only way for large conglomerates to continue to grow will be through innovation and manufacturing efficiencies. Since Clorox just reported earnings, let's take a look at how this diversified company is dealing with these challenges.
Clorox's headline numbers at first don't appear all that impressive. The company grew sales by 4% on 2% volume growth, which led to diluted EPS increasing 5%. However, there were certain segments of the company's operations that showed significant earnings growth. The company reports in four different divisions. Three of these divisions are tied to domestic sales, and the remaining division encompasses international results. This is slightly different than their competition, as Procter & Gamble reports along product lines, and Colgate-Palmolive reports different geographic regions. Let's take a look at Clorox's three domestic divisions and see how things are going.
Clorox's Cleaning division includes their laundry, home care, and professional products offerings. This unit saw 7% sales growth, with good organic volume growth of 5%. The company leveraged its manufacturing prowess to turn this 7% sales growth into 15% pretax earnings growth. When you compare these results to Procter & Gamble's cleaning division, which reported a 1% volume decrease, it seems that Clorox is stealing market share from the consumer goods giant.
The Household division of Clorox includes the company's famous name Glad bags and wraps, Kingsford charcoal, and cat litter. While this division was unable to produce positive volume increases, through price increases the company did manage 3% sales growth. The company's ability to control costs and benefit from manufacturing efficiencies was impressive, and helped produce 14% pretax earnings growth. Also seeing somewhat lackluster top line growth was Clorox's Lifestyle unit. This division encompasses the company's dressings and sauces, Brita water filtration, and the U.S. personal care businesses. With just 3% sales growth on 2% volume growth, the company was only able to produce 3% pretax earnings growth.
However, the Burt's Bees personal-care business offers some opportunities as a growth driver in the future. Most people know Burt's Bees through their lip balm, but the company is expanding this business into skincare and other areas. In addition, the company's Brita filtration division is already a well-established brand name, and the company is introducing innovative products to expand this unit's growth. Clorox recently introduced a product called the Brita Bottle, which allows consumers to filter water directly into a sports bottle. While Clorox was able to increase earnings at their domestic divisions, the company was unable to overcome currency fluctuations internationally.
Unlike Procter & Gamble and Colgate-Palmolive, Clorox gets a smaller part of its revenue and income from international sales. The company saw 3% sales and volume growth, but currency fluctuations caused a 14% pretax earnings decrease. While at first investors would be encouraged by the 3% organic volume growth, this doesn't match volume growth in multiple international regions from Colgate-Palmolive. Colgate saw between 6.5% and 9.5% organic volume growth in multiple international regions. However, Clorox has much smaller international operations and the smaller volume growth could be attributed to a lack of the same size international presence as their competition. Even with these challenges, the company reaffirmed that it should meet or come very close to analyst targets for this year.
Clorox sees sales growth of 2% to 4%, and diluted EPS between $4.20 and $4.35. With analysts calling for 3.5% revenue growth and EPS of $4.29 the company's guidance suggests no big surprises, but solid results. With the stock selling for about 17 times analyst full-year estimates, while the stock is not cheap the company is showing good organic growth. While I still favor Colgate-Palmolive as they have better organic volume growth, investors looking for a good dividend yield from a company reporting solid results could choose Clorox to try and clean up in an uncertain market.
MHenage has no positions in the stocks mentioned above. The Motley Fool owns shares of The Clorox Company. Motley Fool newsletter services recommend The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.