In 2013, Clorox introduced its 2020 Strategy, which focused on driving long-term profitable growth through the year 2020. The company targeted annual net sales growth in the range of 3% to 5%. Clorox identified three key elements to its new plan. First: category, channel and geographic expansion. Second: increased brand investment. And third: cost reductions.
The company organized into four segments: cleaning (32% of sales), household (32%), lifestyle (17%), and international (19%). Liquid bleach represented about 14% of total sales in fiscal 2015.
On May 3, Clorox reported fiscal 2016 third-quarter earnings of $1.21, ahead of the of $1.11 consensus estimate. Organic sales of 5% were better than expected and were driven by increased volume. Gross margin surged 210 basis points to 45.3%, powered by cost savings, higher pricing and lower commodity costs.
On June 2, management reiterated its previous guidance for the year. The company sees earnings per share of $4.85 to $4.95, which includes 3 to 5 cents impact from the recent Renew Life acquisition. Management believes gross margins will increase 150 basis points. Gross margins are expected to expand at a slower rate in fiscal 2017 due to less benefit from lower commodity costs and continued investment in overseas expansion. Clorox will report its fourth quarter and full year on August 3.
Looking forward, analysts think the company will report revenue of $5.9 billion, up 3%, in fiscal 2017. Earnings are forecast to be up 5.7% to $5.25 per share.
By almost any account, Clorox has done a phenomenal job.
The company is three times the size of its next competitor. Clorox has increased its dividends each year since 1977. In the last 10 years, it has repurchased over 214 million shares, or 40% of its outstanding stock. Over the last 20 years, shares of Clorox have outperformed the S&P 500 by double.
But I think one has to be careful of valuation here.
The good news is built in to this stock. The consensus estimate for fiscal 2017 is $5.22, or 26 times forward estimates, which is a 16-year high. With strong dollar headwinds keeping a lid on sales and a slowdown in margin expansion, it is unlikely the company will be able to beat Wall Street estimates enough to drive the stock much higher.
I still like the company and would look to buy the stock on weakness, but I think it's too hard for investors to clean up at this lofty valuation.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.