Welcome to the Stock of the Day.
Shares of Clorox (CLX) gapped down Wednesday after the consumer products giant reported fiscal second-quarter earnings. Do the sellers have the right idea, or is there a buying opportunity in the mix?
To answer this question, let’s see whether this company’s financials are squeaky clean, or if there are any hidden stains we should worry about.
Company Profile
Clorox is one of those brands that have become so popular that the name is now interchangeable with the generic term “bleach”. And, there’s good reason for that—it is estimated that 8 in 10 U.S. households rely on Clorox for their laundry and cleaning needs!
The company also sells products in over 100 countries across five continents and employs over 8,000 worldwide. In addition to bleach, the company’s product portfolio includes mops, towels, toilet bowl cleaner, disinfecting wipes and a range of other cleaning solutions. Fun Fact: The company is now 100 years old.
Earnings Rundown
Clorox announced mixed second-quarter operating results before the opening bell on Tuesday. Higher commodity costs and unfavorable foreign exchange rates weighed on the company’s Q2 net earnings, which declined 6.5% year-on-year to $115 million, or 87 cents per share. Earnings from continuing operations were 88 cents per share, missing the 91 cents consensus EPS estimate by 3%. Meanwhile, net sales ticked up 0.4% to $1.33 billion on higher cleaning segment sales. Analysts had predicted $1.31 billion in sales so Clorox posted a modest sales surprise.
Looking Ahead
Looking ahead to FY 2014, the company anticipates that currency headwinds and higher costs will continue to weigh on results. Clorox expects sales growth in the range of 1% to 2%, down from the earlier range of 2% to 3% growth. Additionally, Clorox forecasts EPS in the range of $4.40 to $4.55 per share, down from the earlier EPS guidance of $4.45 to $4.60. This revised ranged still falls within the Street view of $4.53 per share.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. After staying in buy territory for all of 2013, I decided to downgrade this Conservative-ranked stock to a C-rated hold in January 2014. That’s because buying pressure has tapered off of late, suggesting that the stock may be losing its shine in this narrowing market.
At time of writing, CLX received mediocre marks for sales growth, earnings growth and cash flow. The exception is Clorox’s A-rated return on equity score, but the overall Fundamental Grade is a C.
Bottom Line
As of this posting I consider CLX a C-rated Hold. I’m keeping a close eye on the stock’s Quantitative Grade to assess whether now may be a good time to sell, but in the meantime continue holding CLX shares.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!
