Clorox Outmuscling Its Larger Rivals

By Ryan C. Fuhrmann | July 29, 2010 AAA

Consumer goods firm Clorox (NYSE:CLX) reported fourth quarter and full-year results on Tuesday that were notable for their lack of surprises. A Venezuelan currency devaluation adversely affected the firm and archrivals, but other than that Clorox saw steady sales growth and robust overseas trends. The fact that it is smaller than many peers also indicates growth will be less of an uphill battle going forward.

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Fourth Quarter Review
Net sales eked out a 1.1% rise to $1.52 billion as 2% volume growth and price increases in international markets were offset by a currency devaluation in Venezuela. Venezuela took 2.3 percentage points out of total sales growth for the quarter. Despite Venezuela, international sales growth was positive at 2% even though volumes were flat. Rival Colgate Palmolive (NYSE:CL) was hit more severely in Venezuela as it controls more than 90% of the toothpaste market in the country.

Management cited record shipments of major brands such as Kingsford charcoal and Hidden Valley salad dressing. Higher commodity prices and trade-promotion spending sent gross margins down a percent to 44.8% of total sales. SG&A expenses also increased, rising to 13.4% of sales as Clorox is spending to grow internationally through IT investments and support of Burt's Bees, which was one of the firm's more recent acquisitions. As a result, total earnings grew only $1 million, or less than 1% to $171 million, or $1.20 per diluted share.

Full Year Recap
Full year sales also grew modestly, rising 2% to $5.5 billion as Venezuela took 1.2 percentage points off the top-line expansion. However, gross margins improved for the entire year, rising 180 basis points to 44.8% of sales as "strong cost savings and the benefit of price increases, [were] partially offset by higher commodity costs." Net income improved 12.2% to $603 million, or $4.24 per diluted share.

Outlook
For the coming year, Clorox said to expect 2% to 4% sales growth, slight gross margin improvements, and diluted earnings between $4.50 and $4.65 per share. This would represent at worst 6% year-over-year bottom-line growth.

Bottom Line
Clorox remains a steady performer in absolute terms and stands out compared to more economically sensitive firms as well as archrivals, including Colgate Palmolive and Proctor & Gamble (NYSE:PG) that each reported challenging quarterly financial results in the past week. And with a market capitalization of under $10 billion, Clorox will find it easier to grow - as it has been doing internationally. P&G, with a market cap of $171 billion and projected sales of $80 billion for the full year, must add sales the size of Clorox as a whole just to grow a couple of percent. Global rival Unilever (NYSE:UL) is nearly 10 times bigger in terms of market cap while Colgate is nearly four times bigger. (For more, see 5 Money-Saving Shopping Tips.)

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