According to the news report by CNBC, The Clorox Co.’s shares surged by 6.5% in trading on Monday after the consumer products company reported its fiscal second quarter profit that were better than market expectations. The company also re-confirmed its 2019 forecast. Clorox’s shares are currently trading at $158.38 per share.
Clorox reported that its adjusted earnings per share (EPS) was $1.40, vis-à-vis market consensus estimates of $1.30. The company also posted a 4% sales growth, taking the revenue for the quarter that ended on December 31 to $1.47 billion.
The Chairman and Chief Executive Officer of Clorox Benno Dorer stated that the company’s strong execution of a pricing as well as cost saving strategy allowed it to address the issues of short-term headwinds. Dorer said this strategy was what led the company to another quarter of strong topline performance.
Dorer also said that the company remained on track for earnings as well as sales for this year.
In a press release, Clorox stated that sales growth for the fiscal year 2019 was expected to be between 2% and 4%. This would be driven by innovations that the company’s management expected to bring in an extra 3% in incremental sales. The diluted EPS for 2019 was expected to be in the range of $6.20 to $6.40 per share.
Clorox also gave a warning that it was expecting the increased tariffs to impact profits negatively by 5% to 7% for fiscal 2019.
MarketWatch gave a further breakdown of the consumer products maker’s performance.
The company’s net income dropped from last year’s $1.77 per share, which is $233 million, to its current $1.40 per share, which is $182 million. Last year, the company had received a one-time benefit due to the new tax reforms.
The 4% sales growth was due to better-than-expected sales in Clorox’s cleaning and lifestyle segment. This also helped offset the decline the company experienced in sales in the household division.
Clorox’s stocks have dropped by 2.8% in the first three months of 2019. However, the SPDR Consumer Staples Select Sector exchange traded fund has lost more at 3.4%. The S&P 500 Index has slipped by 0.6% in the same time period.
According to Barron’s, consumer products companies, which once saw steady growth, have been struggling in recent years due to changing consumer preferences. Consumers have been more and more moving towards greener and local alternatives.
Added to this, international markets have also been struggling due to uneven growth emerging markets. The strong dollar has also impacted profitability and growth in the international segment.
Another concern that this segment of the industry is facing is a heavy debt load. Investors also penalized companies that did not show organic growth. In fact, Clorox was one of the companies that was punished by investors after it published its earnings in its fourth quarter last year.
With this earnings report, investors are soothed, thanks to increased sales and the fact that Clorox did not change its forecast for the year.
Wells Fargo’s analyst Bonnie Herzog kept a Market Perform rating for the company, however, she praised Clorox for its performance for the quarter. Herzog also highlighted the positive gross margin results, which were unexpectedly higher than market consensus estimates. Clorox’s gross margin results were 150 points higher that expected.
Herzog stated that she hadn’t been expected gross margins to go up until the second half of the year. She said that these results now indicated that the forecast made by the company could actually now be conservative. She said that Clorox’s management’s strategy has paid off.