The Clorox Company (NYSE:CLX) is a manufacturer and marketer of consumer and professional products. The company operates four divisions: Cleaning (the famous Pinsol), Household (Glad bags and wraps), Lifestyle (dressing and sauces), and International (covers sales for the above three divisions outside the U.S.). As you can see, its revenues are pretty well spread among the four divisions:
However, I’m surprised to see that the international portion only represents 22% of Clorox’s revenues. Clorox usually sells its products through retail businesses such as grocery stores, merchandisers, and medical supply providers. In June 2012, the company bought HeathLink and Aplicare, two companies revolving around infection control products. Clorox also bought Soy Vay Enterprises, concentrated in Asian marinades and dressings (I hope they don’t mix both acquisitions).
Clorox is a well-diversified company, manufacturing goods in a dozen countries and selling them in more than 100 countries. Its organic sales growth trends around 3% to 5% (4% for the quarter ended June 30, 2012), and its main strategy to improve market share seems to be through acquisitions. Clorox is putting a lot of emphasis on a sustainable business model with green products (that’s always a challenge for the cleaning industry) and aims to be a socially responsible employer (giving the breakdown for male/female/minority employees/managers in their company). It also tracks sustainability goals in term of GHG, Energy, Water, and Waste management. Clorox is definitely taking a step ahead of other companies in general with the tracking of these metrics.
Clorox is among the "giant companies," racking up $5.5 billion in sales last year. Clorox’s competitors are also part of the big leagues: Procter & Gamble (NYSE:PG), Colgate-Palmolive (NYSE:CL), and Kimberly-Clark (NYSE:KMB).
Clorox Stock Chart
Clorox Dividend Growth Chart
Clorox's dividend growth has been quite interesting since 2007. It went from $0.31/share to $0.64/share in only five years. Its annualized dividend growth for the past five years is 13.25%.
Company Ratios and Financial Info
|Current Dividend Yield||3.51|
|5 year Dividend Growth||13.25|
|1 year Dividend Growth||8.44|
|Sales Growth (1 year)||4.53|
|Sales Growth (5 year)||2.91|
|EPS growth (5 year)||4.44|
|P/E Next Year||15.82|
|Debt to Capital Ratio||0.29|
The P/E ratio (17.22) and forward P/E ratio (15.82) show that Clorox is not a huge bargain at $74. On the other hand, the company's major competitors show higher P/E ratios: PG at 22.21, KMB at 19.10, and CL at 21.49.
The problem with mature companies is that you won’t find huge growth anywhere. Sales growth over the past five years have been at 2.91%, while the earnings per share is at 4.44%. There is obvious pressure on the margin from competitors, and that's why this metric is going nowhere (currently at -0.47%). Considering that the U.S. has gone through some rough economic times since 2007, we can say that Clorox is able to find ways to keep growing in a hostile environment.
On a more positive note, the company has clearly taken a stand in terms of dividend growth. Clorox is already a dividend champion (increasing its dividend for 25 consecutive years), but aggressively increased its dividend for the past five years. At the current rate (13.25%), Clorox will double its dividend every five-and-a-half years, which is a pretty good standing in the dividend world. Clorox is clearly using its dividend growth as a "marketing tool" to attract investors. When it was time to talk about performance in its financial statements of 2011, it used two items : $2.7 billion returned to stockholders and a 100% dividend increase (both over the past five years).
The current payout ratio (58%) leads me to think that Clorox has a lot of room to continue increasing its dividend over time. However, considering the slow sales growth, I don’t expect the future dividend increases to be as aggressive. Since Clorox is a mature company, you shouldn't be surprised to see most trends from 2009 to 2012 as fairly stable. While the free cash flow is on a downtrend, I’m very happy to see diluted net earnings per share going up for four consecutive years.
Clorox: Technical Analysis
Clorox is currently trading on a strong uptrend. It might be a good time to acquire this stock.
Upcoming Opportunities and Dangers for Clorox
Clorox’s biggest divisions include its cleaning products. I think it could be a good very place to have your strength as people are getting more and more obsessed about germs and infections. As the population ages, this will become an even bigger issue in hospitals and long-term care facilities. There is one thing I don’t like about Clorox, however: 78% of its revenues come from the U.S. Clorox has several day-to-day products that consumers buy regardless of the economy. This prevents them from being overly affected by an American recession. Nevertheless, I would have expected better revenues generated from the international branch.
When you look at the most recent financial statements, you will see that international earnings are up 116% compared to last year. This convinces me that Clorox can become a fierce competitor outside its primary playground. The cleaning and household divisions are stable with 7% increased earnings. I think that the future of Clorox is definitely in the cleaning industry, but it will have to be able to "export" its strength outside of the U.S. to find more interesting growth.
Final Thoughts on Clorox
When I look at the numbers, I think Clorox is definitely a good dividend growth stock to hold in a portfolio. It shows great diversification along with stable growth. I intend to review its competitors in the upcoming weeks, but the fact that Clorox is trading at a lower P/E ratio makes me think that Clorox may be the best pick in this industry. But I won’t make the call yet -- I have take a look at PG, KMB, and CL first.
Disclaimer: I do not hold a position CLX.