Why Clorox Co’s Recent Slide is No Surprise (CLX)

Consumer goods behemoth, Clorox Co (CLX), which was in the green zone for long, saw its shares fall last week to a 52-week low of $113.26 on the last trading day, which also marked its closing price for that session.

Why Clorox Co Stock's Slide is No Surprise (CLX)This Zacks Rank #4 (Sell) stock has lost 6.8% over the past one month and 2.1% since reporting lower-than-expected earnings for the first quarter of fiscal 2017 last week.

So let’s see what went wrong with Clorox in the first quarter, which weighed upon its stock.

CLOROX CO Price and Consensus

CLOROX CO Price and Consensus | CLOROX CO Quote

Clorox’s first-quarter fiscal 2017 earnings marked its second consecutive quarterly miss. The company’s earnings were hurt by persistent currency headwinds and higher manufacturing and logistics expenses that more than offset the benefits from solid sales and cost savings.

Also, Clorox’s gross margin contracted 60 basis points to 44.4% in the quarter, as greater manufacturing and logistics expenses, unfavorable mix and adverse currency movements more than offset the gains from efficient cost savings, lower commodity costs and improved pricing.

Following the quarter, management also revised its fiscal 2017 outlook, which takes into account a challenging macroeconomic environment and adverse currency movements. The company tweaked its earnings guidance for fiscal 2017, including the ASU 2016-09 benefit, stemming from the new accounting standard adopted recently.

Evidently, management stated that the ASU 2016-09 benefit is now expected to boost fiscal 2017 earnings by 10–15 cents per share compared with a gain of 25–30 cents expected earlier. Consequently, the company lowered its earnings forecast for fiscal 2017 to $5.23–$5.43 per share (including ASU benefit) from $5.38–$5.58 expected earlier.

Following the dismal earnings, the company also witnessed a downtrend in its Zacks Consensus Estimate for the second quarter and fiscal 2017, which dropped 2.4% to $1.23 and 3.3% to $5.33, respectively, over the past 7 days.

Nonetheless, excluding the benefit from the new accounting standard, the company reiterated its earnings per share guidance range of $5.13–$5.28 for fiscal 2017.

Apart from the aforementioned factors, what keeps Clorox in the danger zone is the stiff competition it faces from other well-established consumer products players, as failure to offer exclusive high-quality products at competitive prices may hamper its market share and in turn, dent overall performance.

Also, we remain somewhat cautious of Clorox’s performance, given the persistently slowing economy in some of its key global regions, resulting from certain macroeconomic hurdles.

For investors, we’ve identified better options…

Better-ranked stocks to consider in the consumer staples sector include Ollie’s Bargain Outlet Holdings Inc (OLLI), Blue Buffalo Pet Products Inc (BUFF) and Spectrum Brands Holdings, Inc. (SPB), each with a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ollie’s Bargain has to its credit a spectacular earnings trend as the company delivered a positive earnings surprise over the past four quarters. Moreover, its long-term EPS growth rate of 20.2% and positive estimate revisions over the past 90 days help it stand strong against the industry.

Blue Buffalo, with a long-term EPS growth rate of 16%, has seen positive estimate revisions for 2016, over the past 90 days. The company also flaunts a solid earnings surprise history.

Spectrum Brands, with a long-term EPS growth rate of 13.3%, has delivered back-to-back positive earnings surprises in the last two quarters.

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