Clorox: Earnings Preview

Clorox Corporation (CLX), one of the world's leading manufacturers of consumer products, is scheduled to report its fourth-quarter 2011 financial results before the opening bell on August 03, 2011. The current Zacks Consensus Estimates for the quarter is earnings of $1.19 a share. For the quarter under review, revenue is expected at $1,469.0 million, according to the Zacks Consensus Estimate.

Third-Quarter 2011, a synopsis

Clorox Corporation posted lower third-quarter fiscal 2011 earnings of $1.03 per share compared with $1.07 per share in the year-ago quarter. Reported quarter earnings also failed to meet the Zacks Consensus Estimate of $1.04 per share.

Clorox's net sales during the quarter upped 1.3% year over year to $1,304 million from $1,287 million in the year-ago quarter. However, total revenue fell short of the Zacks Consensus Estimate of $1,321 million.

Total volume in the quarter inched up 1% as the company benefited from volume gains from Burt's Bees natural personal care products, the Away From Home institutional business and Home Care category. However, this was partially offset by decline in volume in the Glad and Brita businesses.

Guidance for Fiscal 2011

Clorox anticipates annual earnings of $3.85 to $3.95 per share on flat to 1% growth in sales for fiscal 2011. Gross margin is expected to decrease in the range of 75 to 100 basis points.

Fourth-Quarter 2011 Zacks Consensus

The analyst covered by Zacks expects Clorox to post fourth-quarter 2011 earnings of $1.19 a share, slightly lower than earnings of $1.22 delivered in the prior-year quarter. The current Zacks Consensus Estimate ranges between earnings of $1.15 and $1.24 a share.

Zacks Agreement & Magnitude

Of the 16 analysts following the stock, only one analyst revisited and upgraded its estimate, over the last 30 days for the fourth quarter of fiscal 2011. However, the current Zacks Consensus Estimate has remained constant. Over the last 7 days, not a single analyst revisited their estimates.

Mixed Earnings Surprise History

With respect to earnings surprises, Clorox has thrice topped the Zacks Consensus Estimate over the last four quarters in the range of approximately negative 4.4% to positive 9.7%. The average remained at approximately positive 2.0%. This suggests that Clorox has beaten the Zacks Consensus Estimate by an average of 2.0% in the trailing four quarters.

Our View

Clorox is one of the world's leading manufacturers of consumer products. The company possesses a strong portfolio of brands, including Clorox, Glad, Brita, Armor All, Burt’s Bees, STP and Kingsford, thereby offering it a competitive edge and bolstering its well-established position in the market.

Moreover, Clorox has established well-defined financial goals to measure its progress. These goals include 3% to 5% annual sales growth before acquisitions, and 75 to 100 basis points of annual improvement in operating margin.

On the flip side, the company faces intense competition from other well-established consumer product companies, both in the U.S. and in international markets, such as Colgate-Palmolive Co. (CL) and Procter & Gamble Co. (PG). Most of the company's products compete with other widely advertised brands within each product category and 'private label' brands and 'generic' non-branded products of grocery chains and wholesale cooperatives in certain categories, which typically are sold at lower prices.

We are maintaining a long-term 'Neutral' recommendation on Clorox Corporation. Moreover, the company has a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock.