Clorox stock hit as demand for wipes, disinfectants wanes

 Clorox shares are under pressure after the company's fourth-quarter sales plunged due to consumer demand shifting away from products like disinfectants and wipes. 

The company reported a 9% sales decrease and a 68% decrease in diluted net earnings per share for the fourth quarter. Clorox reported total quarterly net sales of $1.8 billion, down from $1.98 billion a year ago, and net income of $97 million, or 78 cents per diluted share, compared to $310 million, or $2.41 per diluted share, in the year-ago quarter. 

Clorox's Health and Wellness segment, which includes cleaning, professional products, minerals and supplements, posted a 17% sales decrease for the quarter. 

"Sales decreased in two of three businesses, primarily reflecting lower shipments of cleaning and disinfecting products in both the retail and professional channels as consumer demand decelerated," the company said in its earnings release. "Segment sales results were also impacted by negative product mix from the normalization of supply."

In addition, the Health and Wellness segment saw a 104% pretax earnings decrease, which the company attributed to lower sales, gross margin contraction, higher advertising investments and a noncash charge of $28 million, or 17 cents, in connection with investments and related arrangements made with a professional products business unit supplier. Excluding this charge, Clorox's adjusted diluted net earnings per share came in at 95 cents, a 61% decrease versus the year-ago quarter, primarily due to lower sales, higher manufacturing and logistics costs and increased commodity costs which were partially offset by cost savings initiatives.

Clorox's Household segment saw fourth-quarter sales decrease 8% due to lower sales in its bags and wraps and grilling businesses due to "unfavorable price mix and decreased shipments from moderating consumer demand." Pretax earnings fell 31% due to lower sales and higher manufacturing and logistics costs. In its Lifestyle segment, quarterly sales dropped 3% due to unfavorable price mix and lower shipments in its water filtration and food businesses. Pretax earnings fell 22% due to higher manufacturing and logistics costs and lower sales. 

Meanwhile, international sales in the quarter increased 5%, driven by higher shipments from the company's acquisition in a Saudi joint venture. Pretax earnings in the segment also increased 70% due to higher sales and gross margin expansion.

For the full 2021 fiscal year, Clorox delivered sales growth of 9% driven primarily by higher shipments due to COVID-19 across all reportable segments.

The company's total net sales for the year came in at $7.34 billion, compared to $6.72 billion for fiscal 2020. Net income for the year came in at $710 million, or $5.58 diluted EPS, compared to $939 million, or $7.36 diluted EPS, a year-ago, representing a 24% decrease in diluted EPS. Excluding noncash items, adjusted EPS was $7.25, representing a 2% decrease.Net cash provided by operations fell 17% to $1.3 billion in fiscal year 2021, compared to $1.5 billion in fiscal year 2020. Clorox delivered overall cost savings of $120 million for the fiscal year.

"Fiscal year 2021 was an extraordinary year for Clorox, with the pandemic putting us through the test of volatility, including rapid changes in consumer demand and inflationary pressure, which is reflected in our fourth quarter results," Clorox CEO Linda Rendle said. 

Rendle noted Clorox has made progress on expanding its production capacity and has nearly doubled its e-commerce business over the past two years as a result of its investments and higher levels of consumer engagement.

Looking ahead at fiscal 2022, Clorox forecasts a sales decrease between 2% and 6% during the first half of the year. Sales are expected to normalize toward the lower end of the company's sales growth target of 3% to 5% in the second half of the year. The company expects consumer demand to be the largest headwind impacting sales in fiscal year 2022.

The company also expects diluted earnings per share between $5.05 to $5.35 and adjusted earnings per share between $5.40 to $5.70. Starting in the first quarter, adjusted EPS will exclude the company's long-term strategic investment in digital capabilities and productivity enhancements to provide "greater visibility into the underlying operating performance of the overall business."

Clorox will invest approximately $500 million over the next five years, including about $90 million in fiscal year 2022, toward digital capabilities and productivity enhancements, including to replace its enterprise resource planning system to "generate efficiencies and better position the company in supply chain, digital commerce, innovation and brand building over the long term." 

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