Freshen Your Portfolio With Clorox

By Ryan C. Fuhrmann | November 03, 2009 AAA

Consumer goods and cleaning products firm Clorox (NYSE:CLX) reported first-quarter results on Monday that confirmed it is feeling few ill effects from the current global slowdown. Sales growth has been far from outstanding, but a reasonable valuation and ample capital generation are key reasons to take a close look at this stock.

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First Quarter Results
Sales fell 1% to $1.4 billion as negative currency headwinds lowered sales by 1.5%. Growth of 1% in volumes, and price increases overseas helped organic growth move forward, though management cited unfavorable product mix, such as from Glad bags and competition from Pactiv's (NYSE:PTV) Hefty brand.

However, it did experience strong trends from its namesake disinfecting wipes given increased attention to controlling the spread of the H1N1 virus.

Three of four operating segments reported single-digit sales growth, with the only laggard household that reported an 11% decline on the Glad brand difficulties. Household also logged an 11% decrease in operating earnings. The rest of the units boasted double-digit profit growth, consisting of a 38% increase in international, 19% bump in cleaning and 18% improvement in lifestyle that sells food products and water-filtration systems such as Brita.

Total operating profits grew 31.2% to $244 million, or 17.8% of sales as margins improved. A higher tax rate lowered earnings growth to 22.7% and came in at $157 million, but share buybacks allowed diluted earnings to improve 23.3% to $1.11 per share. The bottom line came in ahead of analyst projections. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

Outlook
A strong start to Clorox's fiscal year gave management confidence to boost its full-year earnings outlook to between $4.05 and $4.20 per diluted share, or high single-digit to low double-digit growth. Sales should eke out 1% to 2% growth and margins are expected to continue to improve.

The Bottom Line
Shares of Clorox are currently trading at 14.3 times the high end of full-year guidance. This is at the very low end of its five year P/E range of 14 to 26 and well below other rivals, such as Colgate (NYSE:CL) that is trading at more than 17 times forward estimates and expects double-digit sales growth for its coming year. Unilever (NYSE:UN) (NYSE:UL) is also trading at more than 16 times forward estimates, though its dividend yield of 3.6% is slightly higher than Clorox's current 3.4% yield.

Add it up and Clorox is trading at a reasonable multiple on both an absolute and relative basis. Free cash flow also tends to exceed reported net income, which leaves more than sufficient capital to pay a dividend, repurchase shares and make acquisitions. This is all beneficial to shareholders, as is a profitable and stable business model that should easily withstand any future global economic turmoil.

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