The Clorox Company’s CLX impressive performance can be attributed to a strong innovation pipeline, digital transformation initiatives, effective pricing strategies and cost-saving efforts. Clorox's IGNITE strategy and streamlined operating model have played crucial roles in enhancing efficiency.
The company is investing in digital initiatives to stay ahead in the rapidly evolving market. CLX plans to invest $500 million over the next five years in transformative technologies and processes. This includes replacing the enterprise resource planning (ERP) system, transitioning to a cloud-based platform and implementing other digital technologies.
Clorox is taking a proactive approach to addressing persistent cost inflation. By implementing a combination of pricing and cost-saving efforts, the company aims to mitigate the impacts of rising costs and maintain its profitability.
Thanks to its IGNITE strategy, emphasis on digital initiatives and focus on international business strength, the stock has outpaced the Zacks Soap and Cleaning Materials industry. In the past six months, shares of this Zacks Rank #1 (Strong Buy) company have gained 9.8% compared with the industry’s growth of 4.9%.
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IGNITE Strategy – A Key Driver
Clorox is successfully executing its IGNITE strategy, building upon the strong foundation of its 2020 Strategy to drive innovation across all areas of the business. The long-term financial targets under the IGNITE strategy include achieving net sales growth of 3-5%, expanding the EBIT margin by 25-50 basis points and generating a free cash flow of 11-13% of sales.
As part of the IGNITE strategy, Clorox implemented a streamlined operating model in the first quarter of fiscal 2023. This model aims to simplify the company's operations and increase efficiency in various areas such as supply chain, digital commerce, innovation and brand building. The implementation is expected to be completed by fiscal 2024 and generate annual savings of $75-$100 million. In fiscal 2023, the company anticipates recognizing $40-60 million or 30 cents per share in savings under other income and expenses.
The International business segment of Clorox is experiencing robust growth, driven by the Go Lean strategy. The company aims to further improve profitability in this segment through the IGNITE Strategy. Selective investments in profitable platforms and exploring international opportunities, such as acquiring a majority stake in a joint venture in Saudi Arabia, are expected to boost long-term growth. In the third quarter of fiscal 2023, organic sales for the international segment improved 1%, whereas organic sales for the segment overall increased 14%.
In the third quarter of fiscal 2023, Clorox's management made strategic changes to the Vitamins, Minerals, and Supplements (VMS) business, constituting approximately 3% of the company's total sales. The goal was to enhance profitability by focusing on core brands within this segment.
Wrapping Up
Clorox’s net sales are expected to increase 1-2%, whereas organic sales are projected to grow 3-4%. The gross margin is anticipated to expand 250-300 basis points due to pricing, cost-saving and supply-chain-optimization efforts, offsetting cost inflation. Selling and administrative expenses are estimated to be 16% of net sales, including investments in digital capabilities.
Adjusted EPS is expected to increase 6-10% to $4.35-$4.50 in fiscal 2023.
3 Other Stocks Looking Bright
Here we have highlighted three other top-ranked stocks, namely Colgate-Palmolive CL, Church & Dwight Company CHD and Chewy Inc. CHWY.
Colgate-Palmolive, which is a leading consumer goods company, carries a Zacks Rank #2 (Buy) at present. The company’s expected EPS growth rate for three to five years is 6.2%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Colgate-Palmolive’s current financial-year sales and earnings suggests growth of 6.3% and 5.7% from the year-ago period’s actuals. CL has a trailing four-quarter earnings surprise of 1.4%, on average.
Church & Dwight Company, which develops, manufactures and markets a broad range of household, personal care and specialty products, currently carries a Zacks Rank #2. The company’s expected EPS growth rate for three to five years is 7.9%.
The Zacks Consensus Estimate for Church & Dwight Company’s current financial-year sales and earnings suggests growth of 7.1% and 4.4% from the year-ago period’s actuals. CHD has a trailing four-quarter earnings surprise of 9.8%, on average.
Chewy, which operates as an online pet retailer, currently carries a Zacks Rank #2. The company’s expected EPS growth rate for three to five years is 20%.
The Zacks Consensus Estimate for Chewy’s current financial-year sales and earnings suggests growth of 12.1% and 5.7% from the year-ago period’s actuals. CHWY has a trailing four-quarter earnings surprise of 271.9%, on average.
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