Clorox Co. sales have come back down to Earth after consumer stockpiling drove skyrocketing demand during the beginning of the COVID-19 pandemic in 2020.
fiscal third-quarter sales missed expectations. The company also swung to a net loss from a profit a year ago, as a result of an impairment charge of $329 million, or $2.11 a share.
“Sales in cleaning business declined this quarter from lower shipments in a number of our cleaning and disinfecting products,” said Lisah Burhan, vice president of investor relations at Clorox, according to a FactSet transcript of the company’s earnings call.
“The lower shipments are a result of demand normalization in bleach and Pine-Sol relative to the year ago period when consumers turned to these products given the persistent out-of-stocks in wipes and sprays at the onset of the pandemic.”
There are continued supply shortages of wipes and sprays as well.
While these factors are impacting sales compared with last year, Clorox says sales were still up compared with pre-pandemic numbers.
“Nonetheless, two-year stack growth remains very strong, reflecting a much higher level of consumer demand and household penetration than pre-pandemic, even as we begin to see a return to new normal in the U.S., with a growing percentage of the population vaccinated,” said Burhan.
“As we continue to increase supply in our wipes and sprays, product availability and assortment will improve, which, in turn, should lead to improvements in shares.”
Clorox says it has also turned attention back to its innovation pipeline with items like Clorox compostable wipes coming back.
Other categories are still being impacted by the pandemic, either directly or indirectly.
Clorox’s cat litter business increased year-over-year as pet adoptions soared during COVID.
“The driving forces behind [this] business’ strong performance has been its success in the e-commerce channel and innovation,” Burhan said.
“Additionally, the record number of pet adoptions that has occurred during the past year will resonate for years to come as cat parents continue to purchase necessities like litter long after the pandemic has ended.”
Clorox says it has new cat litter innovation ready for launch in the fourth quarter.
The company also saw growth in the Kingsford brand as the U.S. enters grilling season. Over the past year, Clorox says the Kingsford brand has entered one million new households as consumers upgraded their backyards, creating a tailwind for the business.
And like many other consumer packaged goods companies, Clorox said the price of some items will increase this year because of the price of raw materials.
Resin prices have gone up “significantly” which will drive up prices for certain items, including those under the Glad brand, which makes trash bags and food storage products.
has said it will raise prices on items including toilet paper, and Procter & Gamble Co.
says it will hike prices in certain categories, including baby care and feminine care. Hormel Foods Corp.
and J.M. Smucker Co.
are among the other consumer packaged goods and food companies that have said they will raise prices in the near future.
Consumer spending for the month of March jumped 4.2% after government stimulus checks went out, but inflation went up as well.
“Our business is significantly larger than it was before the pandemic,” said Linda Rendle, Clorox chief executive, on the call. Clorox products are in 90% of U.S. households, she said.
“For perspective, it’s worth noting that we delivered a two-year stack of 15% total company sales growth in the third quarter.”
Rendle emphasized that Clorox is following the path of a strategic turnaround plan, and improving supply will also help the company to recover market share.
“We feel good about seeing continued strong consumption and demand across our portfolio relative to pre-pandemic levels,” she said.
“The latest research still tells us that consumer routines and behaviors formed during the pandemic are expected to persist, including prioritizing health and hygiene, drinking more water, taking vitamins and supplements, and spending more time online.”
Other Clorox brands include Brita and RenewLife.
“Although Clorox posted a FQ3 EPS beat (primarily driven by lower SG&A spend), it was low quality in our view as results generally point to a faster-than-expected slowdown in top-line growth as well as more onerous cost pressures,” wrote JPMorgan analysts.
JPMorgan spoke with Clorox executives following the earnings report. JPMorgan rates Clorox stock neutral with a $191 price target.
Analysts support the Glad price hike, margin-accretive innovation, revenue management, and other steps the company is taking.
“Also, we subscribe to the thesis that the pandemic will likely drive lasting structural changes in consumer behavior and household penetration in the U.S. and abroad (heightened focus on health and hygiene), which should bode well for longer term demand across the Clorox portfolio,” JPMorgan analysts wrote.
However, with the vaccine rollout, there’s a consumption slowdown that’s even more pronounced than analysts had expected.
“When we consider this dynamic alongside both the challenging comparisons in the quarters ahead and the building cost pressures across the supply chain, we see limited near-term catalysts for shares at this stage,” JPMorgan analysts wrote.
Clorox stock has tumbled 9.6% for the year to date while the S&P 500 index
has gained 10.9% for the period.