Clorox expects inflation will curb profit for another year

CLOROX tumbled after its earnings guidance fell well short of analyst estimates, underscoring how inflation could continue to plague companies long into 2023.

The owner of Burt's Bees natural skincare and Hidden Valley salad dressing forecast earnings per share in a range of US$3.85 and US$4.22, excluding some items, in the 12 months ending June 2023. That trailed the US$5.26 average estimate from analysts surveyed by Bloomberg.

Net sales during the same period are seen in a range of negative 4 per cent to positive 2 per cent, according to a company statement that included results for its fiscal fourth-quarter. Clorox aims for a long-term target of 3 to 5 per cent.

While consumers flocked to Clorox products such as disinfectant wipes during the early days of the pandemic, sales growth has moderated in recent quarters as demand for cleaning supplies returns to pre-Covid levels and inflation pressures shoppers' budgets. Meanwhile, higher costs for commodities and transportation have eroded the company's profitability.

Clorox shares fell as much as 8 per cent in extended trading in New York. The company's stock had declined 17 per cent this year through Wednesday (Aug 3), compared to a 2.9 per cent decline in the S&P 500 Consumer Staples Index.

The company expects net sales in the current quarter will be down by high-single digits compared with the same period a year ago. Inflation pressure is also expected to peak this quarter.

The Oakland, California-based company sees its gross margin at about 37.8 per cent this fiscal year - short of the average analyst estimate of 38.4 per cent. Clorox's forecast still represents an improvement over results for the fiscal year that wrapped up Jun 30, with the company saying the increase will be driven by higher prices, cost savings and supply-chain improvements.

"We're expecting another very strong inflationary environment," chief executive Linda Rendle said. The company anticipates US$400 million in incremental costs this year due to higher commodity and logistics prices, among other items.

Clorox is working to rebuild its profitability, in part by raising prices 3 times in the last 12 months, with the latest round of hikes coming in July. It's also cutting costs. For example, the company ended third-party manufacturing contracts it started in the pandemic to handle the surge in demand for cleaning products.

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Adjusted earnings per share were 93 US cents last quarter, in line with estimates. Net sales of US$1.8 billion were slightly below the average analyst projection as lower volume in cleaning products offset higher prices. Gross margin of 37.1 per cent beat the 36.3 per cent estimate.

On Wednesday, the company said it has a plan to help the business respond to consumer needs faster and cut down on bureaucracy. Rendle said Clorox would provide more details in the future. BLOOMBERG