Tags: Clorox | crimped | margins | CLX

Clorox Crimped by Weak Consumer in Tight Margin Market

By    |   Friday, 01 June 2012 06:08 PM EDT

Clorox (CLX), as a manufacturer of branded household goods, owns what billionaire investor Warren Buffett refers to as pricing power. Nevertheless, the credit crisis and resulting malaise has cornered many potential Clorox-brand customers, crimping profits in a space where margins are already naturally tight.

Clorox is a manufacturer and marketer of consumer and institutional products with approximately 8,100 employees worldwide and fiscal year 2011 net sales of $5.2 billion. The company sells its products primarily through mass merchandisers, grocery stores and other retail outlets.

Clorox markets trusted and recognized brand names, including its namesake bleach and cleaning products, Green Works natural cleaning and laundry products, Poett and Mistolín cleaning products, Fresh Step and Scoop Away cat litter, Kingsford charcoal, Hidden Valley and KC Masterpiece dressings and sauces, Brita water-filtration systems, Glad bags, wraps and containers, and Burt’s Bees natural personal care products.

The company’s products are manufactured in more than two dozen countries and marketed in more than 100 countries. “The company has developed a strategy focused on creating shareholder value by investing in new and existing sales channels and countries with profitable growth potential and categories, particularly those categories aligned with global consumer trends in the areas of health and wellness, sustainability and affordability, and appealing to a multicultural marketplace,” Clorox management said in a recent filing.

Clorox has a market cap of $8.95 billion in a sector, household products, where the average company size is $4.02 billion. Its trailing 12-month P/E ratio is 16.99 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.68, compared to 2.42 for the sector.

Its projected earnings per share growth for the coming year is 5.69 percent, compared to a sector average of 8.54 percent.

Neutral view

Wall Street is largely neutral on Clorox shares, with a buy calls only from Ned Davis Research and Market Edge. Oppenheimer and Company rate the stock at underperform.

“CLX's performance has improved somewhat over the past year, after several years of weak results, in our view. However, given underlying trends in the categories in which CLX competes and continued inflationary cost pressures, we think earnings growth will lag peers for at least the next year,” S&P analysts wrote in early May.

Clorox next reports on Aug. 1.

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Friday, 01 June 2012 06:08 PM
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