Clorox Q1 2011 Earnings Call Transcript

Clorox (CLX)

Q1 2011 Earnings Call

November 02, 2010 1:30 pm ET

Executives

Donald Knauss - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee

Daniel Heinrich - Chief Financial Officer and Executive Vice President

Lawrence Peiros - Chief Operating Officer of North America Region and Executive Vice President of North America Region

Steve Austenfeld - Vice President of Investor Relations

Analysts

Edward Kelly - Crédit Suisse AG

Lauren Lieberman - Barclays Capital

Constance Maneaty - BMO Capital Markets U.S.

John Faucher - JP Morgan Chase & Co

Joseph Altobello - Oppenheimer & Co. Inc.

Ali Dibadj - Bernstein Research

William Schmitz - Deutsche Bank AG

Wendy Nicholson - Citigroup Inc

Douglas Lane - Jefferies & Company, Inc.

Andrew Sawyer - Goldman Sachs Group Inc.

Karen Lamark - Federated Investors

Alice Longley - Buckingham Research

Christopher Ferrara - BofA Merrill Lynch

Nik Modi - UBS Investment Bank

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Clark's Company First Quarter Fiscal Year 2011 Earnings Conference Call. [Operator Instructions] I would now like to introduce your host for today's conference call, Mr. Steve Austenfeld, President of Investor Relations for the Clorox Company. Mr. Austenfeld, you may begin your conference.

Steve Austenfeld

Great. Thank you. Welcome, everyone to Clorox's first quarter conference call. On the call with me today are Don Knauss, Clorox's Chairman and CEO; Larry Peiros, Executive Vice President and Chief Operating Officer of Clorox North America; and Dan Heinrich, our Chief Financial Officer. We're broadcasting this call over the Internet, and a replay of the call will be available for seven days at our website, at thecloroxcompany.com.

On today's call, Larry will start with comments on our performance by segment, as well as perspective on current category, market share and overall top line results. Dan will then follow with additional color on our first quarter financial performance, as well as our updated fiscal year 2011 outlook. Finally, Don will close with some comments on the first quarter and the remainder of the fiscal year. And after that, we'll open up the call for your questions.

Let me remind you that on today's call, we will refer to certain non-GAAP financial measures including, but not limited to, free cash flow, EBIT margin and debt-to-EBITDA. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today’s press release, this webcast's prepared remarks, or supplemental information available in the Financial Results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today’s earnings release.

Please recognize that today’s discussion contains forward-looking statements. Actual results, or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements.

Lastly, let me point out that restated segment results for fiscal 2010 by quarter excluding the Auto business, which is now reflected as discontinued operations. We hope this information, which is found in the Financial Results area of our website will be helpful as you update your financial models on Clorox.

With that, let me turn it over to Larry.

Lawrence Peiros

Thanks, Steve, and welcome to everybody on the call. As you saw in the press release, we had mixed results this quarter. Our top line was weaker than anticipated, with a lot of that weakness coming late in the quarter. Q1 volume was down 2%, and sales were down 3%.

We are winning our market share but the difficult economy is driving decreases on our U.S. categories. Current quarter sales also were negatively impacted by strong prior quarter retailer merchandising in Charcoal and Food. Further, we saw the expected negative impact from the Venezuela devaluation.

On the positive side, we had a record quarter in Clorox disinfecting wipes, despite a very high-based period due to the H1N1-related sales and some modest foreign exchange favorability in countries other than Venezuela.

Overall, we were disappointed of our Q1 results and we're focused on improving results for the remainder of the fiscal year.

It's usual for me to focus my comments on volume and sales and let Dan provide the detail on the financial side. Starting with our U.S. business, dollar sales and our categories and track channels was down 1% in Q1, and down 2% for the past 52 weeks in all outlets. While our share was down a bit in track channels, we continue to see significant share gains on an all-outlet basis, reflected in the continued shift by consumers to value-oriented retail channels like dollar and club.

In fact, we gained our health share in all but one recorded category. Simply put, our brands in the U.S. in the market share basis are stronger than they have been in several years.

In International, our market share results were more mixed. Share was up in Canada and about flat in Latin America.

In our Clean segment, which includes our Home Care, Laundry and Away From Home businesses, we grew volume 1%. Despite the impact of the H1N1 flu in the year-ago quarter, the segment's volume increase was primarily driven by all-time record shipments of Clorox disinfecting wipes.

Also contributing to the higher volume was growth in our Away From Home business, as well as Pine-Sol cleaners. Pine-Sol had another strong quarter, delivering volume in share growth. Laundry volume was down slightly but only due to the prior-year launch of Green Works' laundry detergent. Despite category softness, Clorox bleach volume was up and shares in track channels increased about a point. We're also seeing improvement in our Clorox 2 business with volume and shares flat for the quarter.

Sales for the Cleaning segment decreased 1% versus the 1% increase in volume. The difference is driven by increase in trade spending and negative mix.

In our Household segment, which includes Glad, Charcoal and Cat Litter, volume decreased 9%, primarily driven by the lower shipment of Glad food storage products and Scoop Away Cat Litter. On Glad, we continue to see better results in the trash side of the business which represents about 2/3 of total Glad.

Shipments of trash bags were up in the mid-single digits with particularly strong results in premium, higher-margin, ForceFlex and OdorShield. In August, we executed a 5% price increase in Glad Trash Bags given higher resin costs. Some private label brands have followed although the primary branded competitor has not. Our Trash business remains healthy and continues to build share behind higher-margin premium items.

Our Cat Litter business is under pressure right now with some significant losses in Scoop Away as we try and get our value equation right in the face of intensified competitive activity. Also contributing to the segment's volume decrease is lowered shipments of Kingsford Charcoal, resulting from strong prior-quarter retailer merchandising.

Sales in the Household segment were down 7%, a bit less than the volume primarily due to improved mix. In our Lifestyle segment, which includes food products, water filtration and Global Natural Personal Care, we grew volume 1%. It was driven by higher shipments of Brita and Burt's Bees products. Burt's had another good quarter with volume and sales growth in the mid- to high-single digits, as the Natural Acne Solutions line, new lip balm flavors and body lotion relaunch, all continue to perform well.

Growth in the Natural Personal Care category has accelerated. On the negative side, Hidden Valley was the other business where the Q1 volume and sales negatively impacted by strong prior-quarter retailer merchandising. And some share in this business however, remains very healthy, and we're pleased with the performance of new product offerings. Sales for this segment were up 1% in line with volume with improved mix off-setting the increase in trade spending.

International volume decreased 2%, driven by the comparison of a strong year-ago shipments of disinfecting products in response to H1N1 flu concerns, as well as lower shipments of Glad products in Australia. International sales were down 2% in line with volume as the impact of the Venezuela currency devaluation was offset by other favorable foreign currencies and price increases. Excluding all of the impact of Venezuela, International sales would have been up 6%.

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