The Clorox Company (CLX) today, Feb. 4, 2013, announced strong sales and profit growth in its second quarter earnings release for the quarter ending Dec. 31, 2012. The company announced a 9% increase in sales coupled with an 18% growth in diluted earnings per share, and also delivered a 1% point of gross margin improvement.
The company reported second quarter earnings of $123 million, or 93 cents per diluted EPS. This compares with $105 million, or 79 cents per diluted EPS in the year ago quarter. Importantly, YTD net cash provided by operations increased to $325 million from $168 million in the prior year.
The Flu Break-Out is a Business Volume Driver:
As I speculated in my initial Clorox dividend analysis on Oct. 27, 2012, because of the severity of this year's flu outbreak, the Clorox Home Care business saw strong retailer promotional participation and significant consumption of disinfecting wipes, as well as other Clorox-branded cleaning products, including bleach. In particular, because of the way the flu rolled across the United States this year, the news media prominently featured the story, which likely had a material impact on increased disinfectant sales.
Indeed, the Cleaning Segment contributed the most increases in the quarter:
- 13% volume increase
- 15% sales increase
- 28% pretax earnings increase
Clorox provided an improved financial outlook for fiscal 2013:
- 3-5 percent sales growth (previously 2-4 percent)
- EBIT margin up 25-50 basis points (unchanged)
- Diluted EPS in the range of $4.25-$4.35 (previously $4.20-$4.35)
Clorox now anticipates sales growth for fiscal 2013 in the range of 3 percent to 5 percent, versus the company's previous outlook of 2 percent to 4 percent. This reflects strong results in the first half of the fiscal year, continued category growth, product innovation across many of the company's brands and the benefit of previously implemented prices increases. Uncertainty in some international markets, particularly in Venezuela and Argentina, as well as a more challenging comparison to strong sales growth of nearly 6 percent in the second half of fiscal 2012, continue to be factors in the company's fiscal 2013 outlook.
Doctors Warn of a New "Superbug" Hitting the U.S. in 2013
Here we go again. Just like the flu walked across the map of the United States, now as recently as Jan. 26, 2013, doctors are warning of a new strain of norovirus that is quickly spreading across the U.S. This strain is called the Sydney strain because it was first identified in Australia. Because no one in the United States has immunity to this new strain, doctors estimate an increase of 50% of cases (from the average year case load of 21 million) may get the virus. Bad news for us… probably good news for Clorox.
The Clorox 100-Year Anniversary… A 2013 Business Driver:
Clorox will celebrate its 100th Anniversary in May (2013). Expect significant marketing and promotion around this event, which will increase consumer awareness, and should move the needle in terms of brand recognition and market share. The theme of the celebration is "100 Years… 1,000 reasons."
Clorox is a Shareholder Friendly Dividend Aristocrat
The company is shareholder friendly in part because over the past 8 years, Clorox has repurchased almost 40% of its outstanding shares. This is a huge repurchase effort unmatched by few companies. In addition, the company is a Dividend Aristocrat. It has paid dividends since 1968, going on 45 years. Most significantly, the company has increased its dividend for 35 consecutive years. This is a record not matched by many. According to Forbes, Clorox is one of 51 companies in the S&P 500 universe that has increased dividends for at least 25 years in a row, making it a member of the rather exclusive "Dividend Aristocrat" club. The company boasts a 5-year dividend growth rate of 13.9%.
Clorox pays an annual dividend of $2.56, yielding an attractive 3.2%.
Clorox Named to 2013 Global 100 Most Sustainable Corporations in the World List
The company is listed as number 41 out of a universe of 4,000 companies. Businesses are screened according to their sustainability disclosure practices, financial health, product types and any recent legal payouts. Remaining companies are then scored on a set of sector-specific key performance indicators (KPIs), including energy, water, waste and carbon productivity; innovation; safety; and diversity.
Clorox is a solid company with a bright future. As of this writing, the stock price intraday on Feb. 4, 2013 is setting new all-time highs (even as the Dow and S&P 500 drop) because the company lifted its sales, profit and margin growth outlook for 2013. Prudent investors may want to wait for the inevitable price pull back before adding Clorox to their portfolio.
As a retiree seeking supplemental income, I have a comfort level because of Clorox's 35-year track record of increasing dividends. Equally important to me is the fact that dividend increases of 13.9% over the past 5 years have handily exceeded inflation. Clorox may be an appropriate selection for other retirees or those who are investing for retirement because of its generous dividend.
Finally, maybe only people who are older and retired think about such things, but no doubt the world is getting more crowded, and we hear more and more about illness outbreaks (flu, norovirus "superbug," etc). I think the Clorox Brand may be well-positioned in the mind of the consumer when it comes to fighting off germs. And this fact may be the strongest long-term earnings driver of the stock.
Disclaimer: I am not a professional investment advisor, just an individual handling his own account with his own money. You should do your own due diligence before investing your own funds.
Disclosure: I am long CLX.