Standing Tall Against Giants

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Editor's Note: The original article stated that Kimberly Clark left Western Europe because of competition from Huggies. Kimberly Clark owns Huggies. This version has been corrected and The Motley Fool apologizes for the error.

Clorox (NYSE: CLX) keeps market watchers encouraged with its new product innovations, growth in domestic markets, and expanded product portfolios such as laundry, homecare, water filtration system, auto care products, and products for professionals. In spite of increased product prices the company remains one of the preferred choices among consumers. It’s Centennial Strategy which focuses on four areas which are Goals & Aspirations, where to compete, how to win, and how to configure the company has helped immensely in maintaining consistent growth and increasing its market share.

Its acquisition of Aplicare which manufactures products that prevent skin infections and Health Link a provider of infection control products has expanded its products range in the health segment and given strength to its product offerings.

Talking about its peer group, Clorox faces stiff competition from Kimberly Clark (NYSE: KMB) and Colgate Palmolive (NYSE: CL) in the personal and household goods segment where both these companies are well established. Let us have a look at the factors that are enhancing their growth in the long term:

Colgate Palmolive: Colgate (which I have covered in detail here) believes in partnering with companies which provide it with growth and earnings in the future. Its recent partnership with Omran healthcare has helped it to bring innovation in its oral care products business and helped it to design electric toothbrushes. This innovation in return gave the company positive outcomes as it became instantly popular among the kids. Colgate is looking forward to a restructuring plan and has already reduced its workforce by 6% and shut down 4 to 5 of its plants. These measures are going to save for the company $365 million to $435 million which will be further invested in advertising, technology up gradation, expansion in the emerging markets and new product launches. The company’s all three segments viz. personal products, household goods and healthcare products have shown a steady 5% growth every year. Colgate has a strong foothold in the emerging markets which contribute 50% to its total revenue.

Kimberly Clark: This company opened a new manufacturing plant in Nanjing (China) in March 2012 with an investment of $100 million which will start production in 2013. As the population is growing in China and has higher number of infants the company sees an opportunity of increased demand in this region. Kimberly Clark is running a cost saving program called Strategic Cost Reduction Plan (SCPR) and Focused on Reducing Costs Everywhere (Force) which are expected to save the company $515 million at 2012 end. Its 'supply chain of future' program which intends at removing too many distribution channels and selling of the facilities which were adding unnecessary cost to the company.

Though Clorox is a comparatively small company compared to these giants, but still it maintains a dominant position in its bleach segment with 65% of market share in the United States. Let us discuss its situation in detail:

Innovation in Bleach: Clorox is replacing its 100 year old regular bleach with concentrated bleach which will be more effective in the high efficiency washing machines. The product will be fully transformed with a new formula and new packaging. This initiative has been taken to ramp up the sales, sustain in the highly competitive market with namesake brands and give a boost to its top line brands which hold first or second position in the market. The bottle will be lighter which is of 64 ounces and more slim as compared to the old bottles which were heavier at 94 ounces. It is set to launch in March 2013 and the company has an intention to spend $80 million for its promotion. Further it has also planned to introduce lighter gentle and thick bleach which will be easy to pour and ready to use.

US and International markets: Clorox is much more dependent on its US market for its sales growth and generates 80% of the sales from this region only. It has a dominant position in this region as compared to the giants Kimberly Clark and Procter and Gamble. The last year figures reveal that it had generated 79% sales growth as against its competitors Kimberly Clark 50% and Procter and Gamble 35%. So continuing with this trend it is expected to generate the same growth in this Fiscal Year too with products innovation. On the other hand it is making capital investment in the international market to establish its position there where currently it holds only a small market share and generates merely 19% of its sales growth

To conclude, the company expects to see 2% to 4% of sales growth in the fiscal 2013 with these fundamentals. It is making Investment in IT and R&D in order to increase the productivity and efficiency. Clorox is making a move in the emerging markets to increase its consumer base especially in India and China as these markets are developing at a great pace and as its competitors are largely focused and established in these emerging markets. The company pays attractive dividend of 3.40% and has forward P/E of 16.36x which is less than Colgate Palmolive trading at 18.20x. I would recommend buying this stock. 

ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own

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