Clorox Reports Q2 Fiscal Year 2023 Results, Updates Outlook

OAKLAND, Calif., Feb. 2, 2023 /PRNewswire/ — The Clorox Company (NYSE: CLX) today reported results for the second quarter of fiscal year 2023, which ended Dec. 31, 2022.

Second-Quarter Fiscal Year 2023 Summary

Following is a summary of key second-quarter results. All comparisons are with the second quarter of fiscal year 2022 unless otherwise stated.

• Net sales increased 1% to $1.72 billion compared to an 8% net sales decrease in the year-ago quarter. The net sales increase was driven largely by favorable price mix, partially offset by lower volume. Organic sales¹ were up 4%. The three-year average growth rate for net sales was 7%.
• Gross margin increased 320 basis points to 36.2% from 33% in the year-ago quarter, due to the benefits of pricing and cost savings initiatives, partially offset by unfavorable commodity costs and mix, and higher manufacturing and logistics costs.
• Diluted net earnings per share (diluted EPS) increased 43% to 80 cents from 56 cents in the year-ago quarter. This includes 16 cents related to investments in the company’s long-term strategic digital capabilities and productivity enhancements as well as 2 cents related to implementation of its streamlined operating model.
• Adjusted EPS¹ increased 48% to 98 cents from 66 cents in the year-ago quarter, due in part to the net benefits of pricing and cost savings, partially offset by lower volume, unfavorable commodity costs, and higher selling and administrative expenses.
• Year-to-date net cash provided by operations was $387 million compared to $222 million in the year-ago period, representing a 74% increase.

“We delivered better-than-expected results this quarter, with strong execution and the benefit of continued brand relevance as well as our ongoing pricing and cost savings efforts,” said CEO Linda Rendle. “The actions we are taking to rebuild margin are working, and we are relentlessly driving additional improvements while investing in our brands, categories and capabilities. Going forward, we are confident that our leading product portfolio in essential categories coupled with our proactive actions will enable us to navigate current macroeconomic challenges and return to more consistent profitable growth over time.”

This press release includes certain non-GAAP financial measures. See “Non-GAAP Financial Information” at the end of this press release for more details.

Strategic and Operational Highlights

The following are recent highlights of business and ESG achievements:

• Generated organic sales growth in three of four segments.
• Sustained record-high consumer value superiority (76%) across the portfolio while rebuilding margins.
• Continued to implement cost-justified pricing actions.
• Achieved highest cost savings in the past 10 years.
• Reduced inventory by nearly 10% from the year-ago quarter.
• Introduced an eco-friendly product line with refillable options that will save plastic and reduce waste with Clorox Free & Clear Disinfecting Mist and Bathroom Ultra Foamer Cleaner.
• Recognized for the fifth time as an EPA Safer Choice Partner of the Year for manufacturing products with ingredients the U.S. Environmental Protection Agency designates as safer for families, pets, workplaces, communities and the environment.
• Ranked No. 2 on Forbes’ 2022 list of The World’s Top Female-Friendly Companies.

Key Segment Results

The following is a summary of key second-quarter results by reportable segment. All comparisons are with the second quarter of fiscal year 2022, unless otherwise stated.

Health and Wellness (Cleaning; Professional Products; Vitamins, Minerals and Supplements)

• Net sales decreased 2%, with 17 points of favorable price mix more than offset by 19 points of lower volume.
• Cleaning sales were flat, benefiting from an early start of the cold and flu season in the United States offset by ongoing normalization of consumer demand.
• Professional Products sales decreased, driven by lower shipments of certain Pine-Sol scented products associated with the recent voluntary recall as well as continued softness in office occupancy.
• Vitamins, Minerals and Supplements sales decreased, primarily due to the business’s ongoing shift away from noncore brands as well as distribution loss with a few retailers.
• Segment pretax earnings increased 84%, primarily behind the net impact of pricing, partially offset by lower volume.

Household (Bags and Wraps; Grilling; Cat Litter)

• Net sales increased 9%, driven by 6 points of benefit from favorable price mix and 3 points of volume growth.
• Bags and Wraps sales were up as a result of strong consumption supported by product innovation and distribution growth.
• Grilling sales decreased due to ongoing normalization of consumer demand after the business saw a surge during the peak of the pandemic.
• Cat Litter sales increased, driven mainly by distribution growth, continued strong consumption and strong merchandising activities, particularly in the Club channel.
• Segment pretax earnings increased 340%, primarily due to higher net sales behind pricing as well as the benefit of cost savings, partially offset by higher commodity costs.

Lifestyle (Food, Natural Personal Care, Water Filtration)

• Net sales increased 2% behind 8 points of favorable price mix, partially offset by 6 points of lower volume.
• Food sales were up, benefiting from continued strong consumption supported by merchandising activities for bottled Hidden Valley Ranch.
• Natural Personal Care sales increased behind distribution gains on holiday product innovations, partially offset by lower shipments caused by continued supply chain disruptions.
• Water Filtration sales were down mainly due to retailer inventory adjustments.
• Segment pretax earnings decreased 8%, mainly due to unfavorable commodity costs and higher advertising spending, partially offset by higher net sales behind pricing as well as the benefit of cost savings.

International (Sales Outside the U.S.)

• Net sales decreased 3%, with 8 points of lower volume and 12 points of unfavorable foreign exchange rates, partially offset by 17 points of favorable price mix. Organic sales¹ growth was 9%.
• Segment pretax earnings increased 26% largely behind the net impact of pricing and lower advertising spending, which was partially offset by higher manufacturing and logistics costs and unfavorable foreign exchange rates.

Fiscal Year 2023 Outlook

The company is updating the following elements of its fiscal year 2023 outlook:

• Net sales are now expected to be between a 2% decrease to a 1% increase (organic sales from flat to a 3% increase). This compares previously to a 4% decrease to a 2% increase (organic sales from a 3% decrease to a 3% increase).
• Diluted EPS is now expected to be between $3.20 and $3.45, or a 14% to 8% decrease, respectively. This compares previously to between $3.10 and $3.47, or a 17% to 7% decrease, respectively.
• Adjusted EPS is now expected to be between $4.05 and $4.30, or a 1% decrease to a 5% increase, respectively. This compares previously to between $3.85 and $4.22, or a 6% decrease to a 3% increase, respectively. To provide greater visibility into the underlying operating performance of the business, adjusted EPS outlook excludes the long-term strategic investment in digital capabilities and productivity enhancements, estimated to be about 55 cents, as well as the company’s streamlined operating model, which is now estimated to increase from 20 cents to approximately 30 cents. While overall expectations for the program remain unchanged, with $75 to $100 million in ongoing annual savings and $75 to $100 million in one-time costs over fiscal years 2023 and 2024, the timing of charges has been adjusted as plans continue to be refined.

The company is confirming the following elements of its fiscal year 2023 outlook:

• Foreign exchange headwinds continue to represent about a 2-point reduction in sales.
• Gross margin increase of about 200 basis points, primarily due to the combined benefit of pricing, cost savings and supply chain optimization, more than offsetting continued cost inflation.
• Selling and administrative expenses between 15% and 16% of net sales, including about 1.5 points of impact from the company’s strategic investments in digital capabilities and productivity enhancements.
• Advertising and sales promotion spending of about 10% of net sales, reflecting the company’s ongoing commitment to invest in its brands.
• Effective tax rate of about 24%, with year-over-year increase primarily reflecting lower excess tax benefits from equity compensation.

Clorox Earnings Conference Call Schedule

At approximately 4:15 p.m. ET today, Clorox will post prepared management remarks regarding its second-quarter fiscal year 2023 results.

At 5 p.m….