OAKLAND, Calif., Feb. 10, 2004 — The Clorox Company (NYSE: CLX) (PSE: CLX)
today announced that higher volume and net sales contributed solidly
to the company's earnings results for the second quarter of fiscal year
2004, which ended Dec. 31, 2003.
"We faced a challenging comparison in the second quarter, and we're pleased
with our performance," said President and Chief Executive Officer
Jerry Johnston. "Clorox people delivered positive results across
the company, including our largest year-over-year volume growth since
the third quarter of fiscal 2002. They also stayed focused and executed
well to deliver strong bottom-line performance."
Clorox reported second-quarter earnings of $109 million, or 51 cents per diluted
share, compared with net earnings in the year-ago period of $89 million,
or 40 cents per diluted share, for an increase of 11 cents per diluted
share, or 28 percent. Net earnings in the year-ago period reflect an
asset-impairment charge for the company's Argentina business, partially
offset by the benefits of an adjustment for the closeout of trade-promotion
programs as the company implemented new systems. Also impacting base-period
net earnings were a gain on a property sale and income from the company's
discontinued operations in Brazil.
Second-quarter volume grew 4 percent compared with the year-ago period, reflecting
growth in every segment of the business. Excluding divestitures, volume
increased 6 percent. Volume growth was driven by new products, increased
shipments of Clorox® liquid bleach, all-time-record shipments of
Glad® trash bags, and record second-quarter shipments of food products,
cat litter and charcoal. Second-quarter sales increased 2 percent to
$947 million. Excluding divestitures, sales grew 3 percent compared
to the year-ago quarter. The variance between volume and sales growth
was due to several factors. Clorox faced an unfavorable comparison to
the year-ago quarter due to the closeout of trade-promotion programs.
Current-quarter factors also included increased trade-promotion spending
to support new products and some unfavorable product mix caused by a
shift to larger sizes as a result of merchandising events at key retailers,
partially offset by favorable foreign exchange rates.
Gross margin in the second quarter declined 300 basis points versus the year-ago
quarter to 43.5 percent, primarily due to higher raw-material costs,
increased costs related to the outsourcing of some Match Light®
charcoal production and the impact of higher trade-promotion spending,
partially offset by cost savings.
Clorox increased second-quarter trade-promotion spending behind a record number
of first-quarter product introductions and merchandising behind Clorox®
liquid bleach. The company also increased its investment in research
and development (R&D) versus the prior year. Clorox's combined investment
in trade-promotion spending, R&D and advertising increased by a
double-digit percent versus the prior-year quarter.
The company's working capital position averaged -1.9 percent of sales. Clorox generated
$188 million of cash from operations in the second quarter, compared
to $199 million in the year-ago period.
During the quarter, Clorox used its free cash flow to buy back 1.6 million
shares of the company's common stock at a cost of about $73 million,
which included $65 million in shares from its major shareholder, Henkel
KgaA, through a pre-existing purchase agreement, and $8 million purchased
on the open market. Since July 2002, Clorox has bought a total of 16.6
million shares of its stock at a cost of about $720 million under the
company's board-authorized stock-repurchase program and ongoing program
to offset potential stock option dilution.
In December 2003, Henkel announced that, to fund its intended acquisition of the
Dial Corporation, it might sell some or all of its stake in Clorox.
While Clorox remains authorized to purchase shares of its common stock
under the board-authorized repurchase program, the company will temporarily
hold off repurchasing additional shares pending a clearer understanding
of Henkel's plans. Henkel is required by an agreement to notify Clorox
prior to selling any Clorox stock, and to give Clorox an opportunity
to negotiate for the repurchase of any such shares.
In conjunction with its audit of Clorox's tax returns for 1997 through 2000, the Internal
Revenue Service (IRS) is auditing the tax returns of an investment fund
in which the company is a limited partner. Based on its audit of the
fund, the IRS has recently proposed certain adjustments that would reattribute
taxable income generated by the partnership to Clorox. The amount of
potential tax resulting from these adjustments is approximately $200
million. The company strongly disagrees with the proposed adjustments
and believes its position is fully supportable and, therefore, intends
to vigorously defend this matter. Assuming this dispute follows the
normal course, resolution will probably occur within two years. While
it is often difficult to predict the final outcome of a disagreement
with the IRS, Clorox accrues for tax contingencies as a matter of course.
Clorox believes it has appropriately accrued for this dispute. Any tax
payment would affect cash flow, but Clorox does not expect the outcome
to have a material impact on its effective tax rate or earnings. See
also the company's Form 10-Q for the period ended Dec. 31, 2003, which
can be accessed at www.shareholder.com/clx/edgar.cfm.
Second-quarter results by business segment
Following is a summary of key second-quarter results by segment. All comparisons
are with the second quarter of fiscal 2003.
Household Products – North America
- 5% volume growth
- 1% sales growth
- 2% pretax earnings decline
New products, including Clorox® Bleach Pen™ gel, Clorox® bathroom cleaners
with Teflon®, and Glad® Press 'n Seal™ sealable plastic
wrap, drove strong volume growth in the segment. Also contributing to
volume growth were all-time record shipments of Glad® trash bags,
and increased shipments of Clorox® disinfecting wipes and Clorox®
liquid bleach. Partially offsetting these positive trends were decreased
shipments of Clorox® ReadyMop™ due to competitive activity,
Pine-Sol® cleaner due to category softness and Glad® food-storage
bags due to competitive activity. Pretax earnings reflect the benefit
of the closeout of trade-promotion programs and a property sale in the
year-ago period, and the impact of higher raw-material costs and trade-promotion
spending behind new products in the current quarter. These factors were
partially offset by the benefits of cost savings, reduced advertising
and increased volume in the current quarter.
Specialty Products
- 4% volume growth, 7% growth excluding divestitures
- 0% sales change, 2% growth excluding divestitures
- 12% pretax earnings decline
The segment's strong volume growth was driven by increases in shipments of food products,
cat litter and charcoal. Delivering record second-quarter shipments
were Hidden Valley® bottled salad dressings, K C Masterpiece®
barbecue sauces, Scoop Away® scoopable cat litter, and Kingsford®
and Match Light® charcoal. Turning in all-time record shipments
were Fresh Step® scoopable and regular cat litters, and Scoop Away®
plus crystals cat litter. Pretax earnings reflect the impact of costs
associated with the outsourcing of some Match Light® charcoal and
unfavorable product mix in the current quarter, and the impact of the
closeout of trade-promotion programs in the year-ago period, partially
offset by the benefit of increased volume and cost savings in the current
quarter.
Household Products – Latin America & Other
- 5% volume growth
- 15% sales growth
- 467% pretax earnings improvement
Strong volume growth in the segment was primarily driven by increased shipments
in Venezuela and Argentina due to core brand health and improving, although
tentative, economic conditions, partially offset by a decline in shipments
in Mexico due to competitive activity. The Asia-Pacific region also
contributed to volume growth in the segment, with increased shipments
of laundry and home care products and insecticides, partially offset
by a decline in bags and wraps in Australia. Sales growth outpaced volume
growth due to favorable foreign-exchange rates and price increases.
Pretax earnings reflect favorable foreign exchange rates, cost savings
and the benefit of increased volume in the current quarter, and a favorable
comparison to the year-ago period, in which the company reported a $30
million pretax asset-impairment charge on its Argentina business.
Clorox's earnings and segment information are reported in accordance
with generally accepted accounting principles in the United States
(GAAP). Percentage and basis-point changes noted in this news release
are calculated based on nonrounded numbers. The company has posted
additional details about its results on its financial
results page.
Outlook
For the third quarter, Clorox expects low-to-mid single-digit volume growth
compared with the year-ago quarter, and sales growth within the company's
long-term target of 3 to 5 percent. Clorox expects earnings per diluted
share in the range of 55 cents to 57 cents.
For the fourth quarter, Clorox expects mid-single-digit volume growth compared
to the year-ago quarter, with sales growing slightly faster than volume.
Volume and sales are expected to benefit from new product introductions,
including a Tilex® product, several food items and new scents of
Clorox® liquid bleach. The company expects earnings per diluted
share in the range of 82 cents to 85 cents.
For fiscal 2004, Clorox expects volume and sales growth in the range of 3 to 5
percent. Consistent with its long-term growth goals, Clorox continues
to expect double-digit earnings-per-diluted-share growth. The company
now expects earnings from $2.48 to $2.53 per diluted share, which is
within the previously communicated guidance.
The Clorox Company
The Clorox Company is a leading manufacturer and marketer of consumer products
with fiscal year 2003 revenues of $4.1 billion. Clorox markets some
of consumers' most trusted and recognized brand names, including its
namesake bleach and cleaning products, Armor All® and STP® auto
care products, Fresh Step® and Scoop Away® cat litters, Kingsford®
charcoal briquets, Hidden Valley® and K C Masterpiece® dressings
and sauces, Brita® water-filtration systems, and Glad® bags,
wraps and containers. With 8,900 employees worldwide, the company manufactures
products in 25 countries and markets them in more than 100 countries.
Clorox is committed to making a positive difference in the communities
where its employees work and live. Founded in 1980, The Clorox Company
Foundation has awarded cash grants totaling more than $55 million to
nonprofit organizations, schools and colleges; and in fiscal 2003 alone
made product donations valued at $5 million.
Forward-Looking Statements
Except for historical information, matters discussed above, including statements
about future volume, sales and earnings growth, profitability, costs,
cost savings or expectations, are forward-looking statements based on
management's estimates, assumptions and projections. Important factors
that could cause results to differ materially from management's expectations
are described in "Forward-Looking Statements and Risk Factors"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operation" in the company's SEC Form 10-K for the
year ended June 30, 2003, as updated from time to time in the company's
SEC filings. Those factors include, but are not limited to, general
economic and marketplace conditions and events, competitors' actions,
the company's costs, the effects on cash flow of tax payments, the success
of information systems design and implementation, the ability to manage
and realize the benefits of joint ventures and other cooperative relationships,
risks inherent in litigation and international operations, the success
of new products, the integration of acquisitions, and environmental,
regulatory and intellectual property matters.
Q2
Earnings Statements
Q2 Supplemental Financial Information