Why Clorox Guidance Could Be Conservative

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Clorox  (CLX) - Get Report shares continued their run after the company posted an eye-popping calendar year first quarter, driven by elevated demand for cleaning and households products in the wake of the Coronavirus pandemic. Guidance was strong, but could prove conservative judging by several factors. 

The stock rose as much as 5% to $195 a share Friday, after having risen 25% for the year into earnings. 

Here were the results:

Revenue was $1.78 billion, beating analysts estimates of $1.55 billion and sing 15% year-over-year. Earnings per share was $1.89, beating Wall Street expectations of $1.67 and rising 31% year-over-year, as the company expanded its gross margin. 

Elevated demand for cleaning and household products, as expected, drove the results. 

Clorox guided for a 4% to 6% sales increase for the calendar year 2020, while forecasting EPS at a midpoint of $6.80 for a 6% to 9% increase over 2019. 

That earnings guidance beats analysts estimates of $6.77 by just 0.4%. Those growth rates, compared with those seen for the reported quarter could be low, especially if the sales momentum driven by the elevated need for cleaning is sustained throughout the year. 

And as seen by the market reaction to the earnings, investors seem confidence that Clorox can comfortable impress Wall Street. Investors have been assigning a rich multiple on next year’s earnings, at 28 times, rich compared to its recent history of around 23 times. The company’s dividend and buyback seems more tan safe, while it has been positively turning its growth trajectory. 

Importantly though, the sales growth guidance reflects headwinds — possibly from currency translations — that move sales growth down from a 6% to 8% growth range. Plus, the profit for the year will be pressured by stepped spend for wages, shipping and other costs. 

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