Consumer Goods Giant Clorox Slashes Profit Outlook, Signals Further Price-Hikes

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by Tyler Durden
Tuesday, May 03, 2022 - 12:25 PM

Clorox shares slipped premarket Tuesday after the maker of disinfectant wipes and other consumer goods cut its full-year gross margin outlook due to inflationary troubles on Monday. The company plans to hike prices on various products through the summer.  

The company reported a third-quarter (ended March 31) adjusted profit of $1.31-per-share, down from $1.62-per-share for the same quarter a year ago. Net sales rose 2% to $1.81 billion, compared with flat sales last year. Net sales were also higher than the estimated $1.79 billion. 

Clorox said net sales for the year could decrease by 1% to 4%. Higher operating costs will hurt gross margins, which are expected to decrease by 800bps. The company said the extra costs are "primarily due to higher than previously anticipated commodity and manufacturing and logistics costs."  

"While cost inflation continues to increase and uncertainty remains, we're seeing the strength and resiliency of our brands driving benefits across the business, and the actions we're taking to rebuild margin are gaining momentum," Clorox CEO Linda Rendle said in a statement. 

Clorox anticipates making $3.60 to $3.85-per-share for the fiscal year ending June, or $4.05 to $4.30-per-share on an adjusted basis. It previously estimated an annual profit of $3.80 to $4.05-per-share, or $4.25 to $4.50-per-share as adjusted.

The knock-on effects of inflation led Rendle to tell analysts during an earnings call Monday that prices for its iconic bleach and other products will see price hikes. 

"We have since taken a subsequent round that was effective this month — in April, and we're starting to see that flow through in the marketplace. And then we have an additional round of pricing scheduled for July. That is also broad across our portfolio, and we're actually going deeper than we had intended to go when we first announced the price increase given what we're seeing from the impact on Ukraine. So we made that decision shortly after we saw the impacts. In total, the vast majority of our portfolio will be priced, and the majority of the portfolio will also have multiple rounds across all three of those time periods," Rendle told analysts during an earnings call Monday. 

Jefferies analyst Kevin Grundy responded to Clorox's earnings report as "mixed:" 

"While the envt. is clearly challenging, cost pressures were again worse than anticipated for CLX, driving another downward revision to the co.'s FY22 EPS outlook," Grundy wrote

Clorox shares slipped 3% to $139 per share, reversing the rally that began in mid-March. 

The question remains whether consumers balk at higher-priced Clorox products and seek cheaper alternatives...