Clorox Guides its Fiscal 2011 - Analyst Blog

The Clorox Company (CLX) guided its top-line and bottom-line expectations for the second quarter of fiscal 2011 as well as fiscal year 2011. The company also provided its plans on buying back share and an estimate of after-tax gain on the sale of its Auto Care businesses. Also, Clorox announced a non-cash goodwill impairment charge to adjust the carrying value of the goodwill related to its acquisition of Burt's Bees.

Sales and Earnings Expectations

Clorox expects fiscal second quarter sales to decline at a 3–4% clip and operating earnings to come in a band of 57 cents to 63 cents per share. The estimates include impact of the Venezuela currency devaluation, strong year-over-year comparison (due to higher shipments of H1N1-related disinfecting products), increased promotional expenditure as well as the impact of a previously announced expansion of a customer product pick-up program. The Zacks Consensus Estimate for second-quarter 2011 is 72 cents per share.

The company estimates goodwill impairment to range in negative territory from $1.82 to $1.78 per share. Also, the company expects earnings of 4 cents per share from the discontinued Auto Care unit and a gain of $1.26 per share from the sale of Auto Care in the fiscal second quarter.

Clorox expects sales to grow in the range of 0–1% in the fiscal year 2011. The company incorporated the effect of weaker categories during the first half and higher level of trade spending in the second half to guide full year sales. The Zacks Consensus Estimate for fiscal year 2011 is $4.14 per share.

The company expects its new product pipeline will help it to deliver solid top-line growth in the range of 2–4% during the second half of fiscal 2011. The adverse impact of the Venezuela currency devaluation and tough year-over-year comparison is also expected to ease.

Share Buyback

Clorox intends to buy back 12 - 13 million of its common stock in the fiscal year 2011. The company has already bought back 2.1 million shares at an average share price of $63.07. The company will recommence share buyback after February 2011. The shift in timing lowered its operating earnings for fiscal 2011 by 5 cents per share.

Divesture of Auto Care Businesses

Clorox completed the divesture of its Auto Care businesses on November 5, 2010, and considered the results in discontinued operations. Clorox expects an after-tax gain of $171 million. Including the $60 million deferred tax benefit from the sale recognized in the company's fiscal first quarter, the total after-tax gain on the sale of the Auto Care businesses is estimated at $231 million.

Goodwill Impairment

The company will record a non-cash goodwill impairment charge of $250 million to $255 million or $1.78 to $1.82 per share in the fiscal second quarter of 2011 related to its Burt's Bees business.

The company believes Burt's Bees continues to be its fastest growing business unit. Clorox expects the business to deliver low double-digit sales growth over the next several years.

Recently, Procter & Gamble Co. (PG), which competes with Clorox, reaffirmed its organic sales growth expectation of 4–6% and operating earnings in a band of $3.91 to $4.01 per share for fiscal 2011.

We maintain our “Neutral” recommendation on Clorox. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Oakland, California, Clorox Co. is primarily engaged in the production, marketing and sales of consumer products in the U.S. and international markets.

 
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