Expanded Margins: Clorox Co (NYSE: CLX) stock rose over 7.1% on Feb 4th, 2019 (as of 10:35 am GMT-5; Source: Google finance) as the company’s second-quarter gross margin expanded by 70 basis points to 43.7 percent from 43.0 percent in the year-ago quarter. Gross margin expansion was driven primarily due to the benefits of price increases and cost savings. These factors were partially offset by higher manufacturing and logistics as well as commodity costs. Clorox delivered earnings from continuing operations of $182 million compared to $233 million in the year-ago quarter.
Better performance than estimates: CLX in the second quarter of FY 19 has reported the adjusted earnings per share of $1.40, beating the analysts’ estimates for the adjusted earnings per share of $1.32, as per Zacks Consensus Estimate. The company had reported the adjusted revenue growth of 4 percent to $1.47 billion in the second quarter of FY 19, missing the analysts’ estimates for revenue of $1.48 billion. The top line shows 3 points of negative impact from unfavorable foreign currency headwinds as well as 4 points of benefit from Nutranext, which was acquired in April 2018.
Positive Outlook: For FY 19, Clorox expects the sales growth to be in the range of 2 to 4 percent, due to an ongoing strong innovation, which is expected to deliver about 3 percentage points of incremental sales. It also reflects about 3 percentage points of combined net benefit from the Nutranext acquisition, which is running ahead of plan, and the Aplicare divestiture. Gross margin is expected to remain about flat in the fiscal year 2019, due to the benefits of price increases and strong cost savings are expected to be offset by negative impacts from cost pressures and foreign currency exchange rates. Clorox expects the advertising and sales promotion spending to be about 10 percent of sales.
Selling and administrative expenses are expected to be at about 14 percent of sales. The company’s effective tax rate is expected to be in the range of 22 to 23 percent. CLX expects the fiscal year 2019 diluted EPS from continuing operations to be in the range of $6.20 to $6.40. Fiscal year diluted EPS also continues to include about 8 to 12 cents of dilution related to the Nutranext acquisition, in addition to 5 to 7 cents of negative impact from tariffs, which are affecting a couple of the company’s business units.