The Clorox Company (NYSE: CLX) today reported strong earnings growth, driven by robust gross margin expansion and modest volume growth, for its first quarter, which ended Sept. 30.
"We had a great first quarter, especially given the continued challenging economic environment and the impact of weaker foreign currencies," said Chairman and CEO Don Knauss. "Most of our businesses performed well, and we exceeded our earnings expectations due to strong sales of disinfecting products related to the H1N1 flu pandemic. We also delivered our third consecutive quarter of significant gross margin improvement."
Fiscal first-quarter results
Following is a summary of key first-quarter results. All comparisons are with the first quarter of fiscal year 2009, unless otherwise stated.
-- $1.11 diluted earnings per share (23% net earnings growth) -- 1% volume growth -- 1% sales decline
Clorox reported first-quarter net earnings of $157 million, or $1.11 diluted earnings per share (EPS), versus $128 million, or 90 cents diluted EPS, in the year-ago quarter, an increase of 23 percent. Earnings in the current quarter benefited from higher U.S. and International sales of disinfecting products in response to demand associated with the H1N1 flu pandemic, double-digit sales growth in food products and robust gross margin expansion. These positive factors were partially offset by lower sales of Glad® products due to category softness, competitive activity and the company's exit from its private label food bags business; $9 million in pretax foreign currency transaction losses, or 4 cents diluted EPS, in "Other expense, net," primarily related to Venezuela; and $6 million in pretax restructuring-related charges, or 3 cents diluted EPS. (See "Non-GAAP financial information" below and the last page of this press release for information and a reconciliation of key first-quarter results.)
Earnings in the year-ago quarter included about $6 million in pretax restructuring-related charges, or 3 cents diluted EPS; pretax foreign currency transaction losses of $3 million, or 2 cents diluted EPS; and a pretax charge of $3 million, or 1 cent diluted EPS, related to the Burt's Bees acquisition.
Note: As a result of the adoption of a new accounting standard regarding calculation of earnings per share, diluted EPS for the first quarter of fiscal year 2009 was reduced by 1 cent, from 91 cents to 90 cents. Further details will be available in this quarter's Form 10-Q filing.
Total volume increased 1 percent, primarily due to higher shipments of Clorox® disinfecting wipes and Hidden Valley® bottled salad dressing, largely offset by lower shipments of Glad® trash bags and the company's exit from its private-label food bags business.
Sales for the first quarter of fiscal 2010 declined 1 percent to $1.4 billion, compared to 12 percent sales growth in the year-ago quarter. Unfavorable foreign exchange rates reduced sales by 1.5 percentage points. The change in sales lagged volume growth primarily due to the impact of unfavorable foreign exchange rates, unfavorable product mix and higher trade-promotion spending. These factors were partially offset by the benefit of price increases, primarily in International.
Gross margin increased 450 basis points to 45.1 percent from 40.6 percent. The year-over-year increase was primarily due to the benefit of lower commodity costs, strong cost savings and price increases.
Net cash provided by operations was $94 million, flat to the year-ago period. These results reflect higher net earnings, offset by a voluntary $33 million pension plan contribution.
The company's debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio, as defined in our lending agreement, was 2.6 to 1 at Sept. 30, 2009.
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