Clorox Q3 2010 Earnings Call Transcript

Clorox Q3 2010 Earnings Call Transcript
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Clorox (CLX)

Q3 2010 Earnings Call

May 03, 2010 1:30 pm ET


Steve Austenfeld - Vice President of Investor Relations

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

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

Daniel Heinrich - Chief Financial Officer and Executive Vice President


Lauren Lieberman - Barclays Capital

Ali Dibadj - Sanford C. Bernstein & Co., Inc.

Edward Kelly - Crédit Suisse First Boston, Inc.

William Schmitz - Deutsche Bank AG

Jason Gere - RBC Capital Markets Corporation

Douglas Lane - Jefferies & Company, Inc.

Wendy Nicholson - Citigroup Inc

Michael Kelter

Karen Lamark - Federated Investors

Leigh Ferst

Alice Longley - Buckingham Research

Christopher Ferrara - BofA Merrill Lynch



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Good day, everyone, and welcome to the Clorox Third Quarter 2010 Earnings Release Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Steve Austenfeld. Please go ahead, sir.

Steve Austenfeld

Great. Thank you. Welcome, everyone, and thank you for joining Clorox's Third 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,

On today’s call, Larry will start with comments on business unit performance, as well as perspective on the current category and share results. Dan will then follow with a review of the quarter’s financial performance, as well as comment on our updated fiscal year 2010 outlook and initial 2011 outlook, both of which were communicated in our press release this morning. Finally, Don will close with his perspective on a few key initiatives for the company. And after that, we'll open it up 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, 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.

Lastly, please recognize that today’s discussion contains forward-looking information. And 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.

With that, let me turn it over to Larry.

Lawrence Peiros

Thanks, Steve, and welcome to all of you on the call. Firstly, I want [ph] (9:42) to focus my comments on our top line results, highlighting sales and market share trends.

Overall, we had a good quarter in what remains a tough economic climate. We delivered solid volume growth and increased sales despite the impact of the Venezuelan currency devaluation. We continue to invest in demand-building activities to build long-term brand equity, while addressing short-term competitive price gaps at the shelf.

Starting with the U.S., consumer takeaway in our categories in track channels was down slightly in Q3, similar to the flattish results we had seen over the last several quarters. We grew our health share in three of eight categories, and our overall U.S. share was down a bit. Private label share was flat versus the year-ago quarter.

For perspective, track channels account for only about a third of our U.S. business volume. Our total all-channel U.S. volume grew 3%, with shipments in non-track channels significantly outpacing track channels. On an all-outlet basis, our 52-week market share through February was up slightly versus the previous year.

In our International business, market share results are generally positive, and we have seen stronger category sales growth, primarily due to pricing. International volume was up 3%, driven by shipments of disinfectant and fragrance cleaning products in Latin America. International sales were up 9% due to the volume growth and price increases.

Overall, our categories in niche international markets are healthy. We grew share in a number of markets, most notably, bleach, dilutable cleaners and air fresheners in Latin America. Overall dollar share in Latin America increased almost a point.

Our total company volume was up 3% for the quarter with volume growth in each of our four segments. Key drivers included higher shipments across disinfecting wipes, all-time market shipments of Hidden Valley salad dressings and Fresh Step cat litter and higher shipments of Kingsford charcoal and Latin American cleaning products.

Sales for the quarter were up 1%. The net effect of foreign currencies on sales was slightly diluted as the Venezuelan currency devaluation was mostly offset by stronger currencies in other countries. Sales were reduced by 2 points due to higher level of trade spending in support of new products in response to competitive activity.

While we always see differences of performance across the portfolio, most of our businesses are performing well. Here's a few highlights. In our largest category, Home Care, we maintained our number one overall share position. Volume was up, but sales declined about 1 point due to higher trade promotion spending and unfavorable product mix. Pine-Sol cleaner had a great quarter, with strong volume growth and the brand's higher shares in the last eight quarters behind distribution gains and merchandising on scented varieties.

Clorox disinfecting wipes also had a strong quarter with an increase in market share and a double-digit increase in shipments. The sales growth in Wipes was significantly lower than what we saw in the first half of the year, but higher than what we expected following the end of the flu season. Looking ahead, we recognize we're coming off against several quarters of challenging volume comparisons to prior-year periods when consumers' concerns related to the H1N1 pandemic drove extremely strong double-digit growth in Wipes.

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