Clorox Investors Are Cleaning Up -- but Take Profits Now

Investors have been cleaning up in shares of Clorox. Over the last five years the stock is up 96%. But now's the time to take profits.
By Chris Laudani ,

Investors have been cleaning up in shares of Clorox (CLX) - Get Report . Over the last five years the stock is up 96%. But it looks like now is the time to take profits.

On Monday, Clorox reported sales growth of 3% and a 20% increase in earnings per share for the first quarter of fiscal 2016. Total company sales grew 3%, driven by strong volume growth and with the benefit of across-the-board price increases. Total volume grew 3%.

Gross margin increased 220 basis points to 45%, driven by cost reductions and favorable commodity costs. In addition, the company saw increased manufacturing productivity.

The household segment performed the best during the quarter, driven by strong consumption of Kingsford charcoal during the Labor Day holiday weekend. The household segment saw 5% sales growth and pretax earnings growth of 58%.

The cleaning segment saw 20% pretax earnings growth on a 6% jump in sales, primarily driven by Clorox disinfecting wipes.

Despite the strong results, management left fiscal 2016 guidance unchanged. Management is forecasting sales growth of 3% to 4%, operating margin growth of 25 to 50 basis points and earnings per share between $4.68 and $4.83.

Since the first quarter was so strong, the company's guidance is either really conservative, or the next three quarters are going to be flat to down. The company is planning to spend more money on advertising in the cat litter, disinfecting wipes and trash bag segments, which should hold down earnings growth.

With increased spending on advertising and a seasonal slowdown in its charcoal business, the company could disappoint going forward. The stock is trading at a 16-year high,and Clorox is up against tough comparisons from last year. At the bottom of the recession, you could have bought Clorox at just 12 times forward estimates, but today, the stock is trading at nearly 26 times forward estimates. That's pricy for a company with just 3% to 4% revenue growth.

Investors should consider taking profits before they get cleaned out.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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