Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Clorox Co (CLX, Financial) ended fiscal year 2024 in a position of operational strength, fully restoring supply and distribution after a cyber attack.
- The company achieved its seventh consecutive quarter of margin expansion and is on track to return to pre-pandemic gross margins in fiscal year 2025.
- Clorox Co (CLX) delivered another year of double-digit adjusted EPS growth.
- The company has strong investment plans in advertising and innovation to support category growth and share growth.
- Clorox Co (CLX) has a robust digital transformation strategy, with significant progress in ERP and Global Finance rollout, expected to yield benefits in fiscal year 2026 and beyond.
Negative Points
- Clorox Co (CLX) experienced a significant disruption from a cyber attack earlier in the year, causing an 18% organic sales decline in the first quarter.
- The consumer environment remains challenging, with increased competitive activity and impact on category growth.
- The company anticipates increased trade spending in the front half of fiscal year 2025, which could impact margins.
- Clorox Co (CLX) faced weather-related challenges in its grilling business, leading to lower-than-expected performance in Q4.
- The company is still working to fully recover its market share in the litter category, which is expected to take more time due to increased competitive activity and consumer behavior.
Q & A Highlights
Q: Given the consumer environment and promotional intensity, what are your expectations for volume and pricing in the back half of the year?
A: The consumer environment is playing out as expected, with category growth moving from mid-single-digits to low-single-digits. We anticipate continued consumer pressure and low-single-digit category growth. Our focus is on executing spending plans, investing in innovation, and delivering superior value to consumers.
Q: What drove the stronger-than-expected gross margin in Q4, and what are your expectations for fiscal year 2025?
A: The over-delivery was primarily due to favorable business unit mix, with stronger performance in the health and wellness segment. For fiscal year 2025, we expect another year of cost savings, benefits from portfolio work, and modest cost inflation, aiming for a 100 basis point improvement in gross margin.
Q: Can you provide more details on the recovery and outlook for the household segment, particularly for Glad and Litter?
A: The household segment missed expectations in Q4 due to weather impacts on grilling and delayed distribution recovery for Glad. We have fully recovered distribution for Glad and are seeing positive trends. Litter is improving but will take more time due to increased competitive activity and consumer behavior.
Q: How are you addressing category health and consumer value focus, and what role does revenue growth management (RGM) play?
A: Our categories are resilient but softer due to consumer pressure. We are focused on delivering superior value and maintaining pricing. RGM is a key growth driver, with ongoing work in price pack architecture and always-on pricing to support both top-line and margin growth.
Q: What is driving the fiscal Q1 organic sales guidance, and how do you see the sales curve progressing through the year?
A: Q1 sales growth is driven by recovery from the cyber attack and strong demand plans, partially offset by increased trade spending. We expect strong top-line growth in both the front and back halves of the year, with normalized trade spending in the back half.
Q: Can you elaborate on the innovation and investment plans for the Litter category?
A: We have strong innovation plans for Litter, including doubling down on successful platforms like Outstretch and introducing new innovations in fiscal year 2025. Investment levels for Litter and overall promotional spending are accounted for in our outlook, with a focus on maintaining a rational promotional environment.
Q: How do you plan to achieve further EBIT margin recovery, and when do you expect to reach historical levels?
A: We are making good progress, with adjusted EBIT margin expected to reach 17% to 17.5% this year. Continued margin transformation efforts, top-line growth, and streamlined operating model will support further recovery, aiming to fully rebuild EBIT margin by the end of this year.
Q: Can you provide clarity on the volume versus pricing mix in the 3% to 5% organic sales growth outlook for fiscal 2025?
A: The 3% to 5% growth will primarily come from volume, with modestly negative price mix due to increased trade spending. We do not have any meaningful pricing planned for fiscal year 2025.
Q: How do recent divestitures impact the long-term organic sales growth outlook, and what are the building blocks for achieving it?
A: The divestitures of Argentina and VMS support more stable and consistent sales growth, contributing to margin expansion. This allows us to focus on growth opportunities in other areas, maintaining our 3% to 5% long-term organic sales growth outlook.
Q: How are you progressing with the digital transformation, and what benefits have you seen so far?
A: The first wave of our ERP and Global Finance rollout went well, setting us up for the US implementation next year. Early benefits include marketing efficiencies, with the bulk of the value expected in fiscal year 2026 and beyond.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
