Dealing With Clorox's Messy Quarter

On Wednesday, Clorox (CLX) reported a messy quarter. Earnings fell well short of analyst estimates, but revenue topped forecasts.

I would avoid Clorox for the time being.

Its first-quarter fiscal 2017 earnings were $1.36 per share, 6 cents below the consensus estimate. Revenue rose 3.8% to $1.44 billion, slightly higher than the $1.43 billion estimate.

On the conference call afterwards, management lowered guidance. The company said it expects 2017 earnings to fall between $5.23 and $5.43 per share, vs. the previous guidance of $5.38 to $5.80. The lower earnings estimate reflects a higher tax rate. The company is now looking for a 32% to 33% tax rate vs. 30% to 31%.

Revenue guidance was unchanged. The company forecast revenue growth of 2% to 4% to $5.88 billion to $6.0 billion.

Volume growth of 8% was offset by a negative 4% price/mix. Gross margins were down 60 basis points, while selling, general and administrative expenses rose 50 basis points. Operating margins declined 110 basis points, which caused operating profits to come in 3% less than expected.

In terms of business segments, the cleaning segment delivered 13% volume growth, but price completion and product mix took 6% out of the results. Household volume was up 6%, but price/mix took 3% out of the segment. The Renew Life division, which was acquired in May, was up 2%.

While volumes are strong, price competition is hurting gross margins and preventing the company from growing earnings as fast as investors would like.

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