Key points
- Clorox is a diversified global manufacturer of cleaning products, home and wellness brands, including Pine-Sol, Liquid-Plumr,
- Clorox is recovering from an August 2023 cyberattack that caused an estimated $356 million in damages.
- Clorox nearly doubled its fiscal second-quarter 2024 EPS estimates and posted sales up 16% year-over-year, but noted that most of the sales increases were driven by shipments to rebuild the retailer’s inventory at cause of the cyber attack.
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The Clorox Co. New York Stock Exchange: CLX is a household name, especially after the pandemic. The name is synonymous with disinfectants and cleaning products. Clorox is a member of the Consumer Staples industry along with similar competitors Proctor & Gamble Co. NYSE: PAGE AND Kimberly Clark Co. New York Stock Exchange: KMB. Its portfolio of iconic brands includes Liquid-Plumr, Glad trash bags, Pine-Sol and Clorox bleach and wipes.
The company has expanded its product line beyond cleaning to include wellness and home care products that sound familiar but aren’t typically associated with Clorox. The company also responded to a debilitating cyber attack that resulted in an estimated $356 million in damages caused by delays in processing production orders that led to product shortages.
2023 cyber attack
In August 2023, Clorox was hit by a cyber attack involving unauthorized activity that disrupted several business operations. Ransomware is suspected. The company discovered “unauthorized activity” on its IT systems, taking several systems offline. The outage caused several weeks of problems, including having to process some orders manually and struggling to meet demand, while production delays caused product shortages. Automated order processing resumed in September. The company invested heavily in restoring operations and all production facilities were back in operation by October 2, 2023.
Diversified global brand growth
Its brands fall into three segments. All segments experienced higher sales volume as retailers replenished inventory following the cyber attack.
Its Health and Wellness segment sells professional and cleaning products such as Clorox bleach and wipes and Pine-Sol scented products. Second quarter fiscal 2024 net sales increased 25% year-over-year, driven by 22 points of higher volume and 3 points of favorable pricing mix.
Household brands sell litter bags, wraps, cat litter and grilling products such as Fresh Step cat litter and Glad litter bags. Net sales increased 9%, driven by 4 points of higher volume and 5 points of favorable pricing mix. Cat litter has seen strong consumer demand.
Its Lifestyle segment offers personal care and water filtration such as Brita and Burt’s Bees water pitchers and filters. This segment also includes food products such as Hidden Valley Ranch condiments and snacks. This segment experienced net sales growth of 21%, comprised of 24 points of higher volume partially offset by 3 points of unfavorable pricing mix.
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A clean sweep
Clorox knocked it out of the park with the release of fiscal second quarter 2024 earnings. On February 1, 2024, Clorox reported fiscal second quarter 2024 earnings per share of $2.16, crushing and beating estimates by nearly double of analysts for $1.09. Revenue grew 16% year-over-year to $1.99 billion, beating consensus analyst estimates of $1.80 billion, compared to 1% year-over-year growth in the year-ago quarter. The increase was largely driven by an increase in volumes as the company rebuilt customer inventories following the August cyber attack and a favorable impact on pricing. Organic sales increased 20% year over year. Gross margins increased 730 basis points to 43.5%, up from 36.2% in the year-ago quarter, driven by pricing and cost reduction initiatives, which more than offset rates of unfavorable changes. The company ended the quarter with $173 million in cash.
Retailer inventory rebuilding or demand-driven sales?
While the growth looks impressive, it should be noted that the overall spike across all segments has everything to do with shipments to “rebuild retailer inventory” along with a sprinkle of strong consumer demand such as that for cat litter . This could be an isolated event or consumer demand could be stronger. The company said organic growth was 20%, and technically, organic sales should exclude one-off events. The positive full-year forecast implies strong consumer demand. However, it’s worth noting the abundant use of “shipments-driven to rebuild retailer inventory” that accompanied each category’s growth metrics.
Bullish guidance
Clorox issued bullish guidance for full-year fiscal 2024. According to consensus analyst estimates, the company expected earnings per share of $5.30 to $5.50 versus $4.60. Net sales are expected in the low single digits versus previous guidance of mid-to-high single digits. Gross margin is expected to increase 200 basis points, compared to previous flat forecasts, reflecting the benefits of cost savings initiatives, supply chain optimization and pricing actions, which help mitigate the effects of inflation supply chain and the impact of the cyber attack. Spending on advertising and sales promotion is expected to account for 11% of net sales.
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Linda Rendle, CEO of Clorox, commented: “We are rebuilding retailer inventories ahead of schedule, allowing us to return to merchandising and restore distribution. As a result, we have made great strides in rebuilding market share.” Rendle concluded: “Importantly, throughout the stockout and recovery period, we have maintained our results of strong brand superiority as measured by our consumer value metric. This demonstrates the power of our advantaged portfolio, the superior value of our brands and their role in consumers’ daily lives.”
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Daily rectangle breakout
The daily candlestick chart on CLX illustrates a bullish flag breakout pattern. CLX reached a pandemic high of $239.87 in August 2020. Shares have since fallen as low as $113.72 by November 1, 2023. CLX triggered a daily market structure low (MSL) breakout until to $126.71 as it staged a rally on fiscal Q1 2024 earnings, rising to the $139.05 to $143.81 rectangular range. This range continued to consolidate into the rectangular channel from November 2023 to January 2024.
CLX experienced a breakout on January 26, 2024, slowly breaking above the upper rectangle trendline resistance at $143.81 and rising to $148.05 ahead of its fiscal second quarter 2024 earnings report. EPS, revenue explosion, and increased guidance caused shares to gap to $152.97, forming a gap-filling range. The 50-period daily moving average support rose to $141.97. The daily relative strength index (RSI) has risen to the oversold 76 band. Pullback support levels are at $148.05, $143.81, $139.0
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