Clorox cuts earnings outlook; higher costs erode profitability

Clorox lowered its outlook for full-year earnings amid stubbornly rising costs while reporting profit in its latest quarter that exceeded market expectations.

The Oakland-based maker of Pine-Sol and Glad trash bags now sees earnings per share of $4.05 and $4.30, excluding some items, for its fiscal year ending in June. That compares to the prior expectation of $4.25 to $4.50.

Chief Executive Officer Linda Rendle said the change is due to an extra $30 million of incremental costs that the company now expects during the period.

Clorox has benefited from heightened demand for cleaning products since the pandemic began, but raw-material inflation and supply-chain snags are now obstructing growth.

The new outlook for $530 million of extra expenses, up from a previous prediction of $500 million, is due to the recent jump in oil prices — which also affects the cost of resins and transportation.

“When we said our prior outlook, there was not a war in Ukraine,” Chief Executive Officer Linda Rendle said in an interview on Monday. “We certainly didn't expect the energy complex to do what it did.”

Higher costs will result in a steeper than expected hit to gross margins this fiscal year, the owner of natural skincare line Burt's Bees and salad-dressing brand Hidden Valley said in a statement.

Gross margins are now seen decreasing as much as 800 basis points, compared to a prior call for a drop of 750 basis points. Organic sales, which exclude the impact of currency fluctuations and acquisitions, are still seen falling by 1% to 4%, unchanged from the previous forecast.

Adjusted earnings per share for the company's fiscal third quarter, which ended March 31, were $1.31, compared to the 93-cent average analyst estimate in a Bloomberg survey. Net revenue of $1.8 billion was slightly higher than Wall Street expectations.

Clorox has raised prices several times to offset inflation, including new rounds in April and July, Rendle said. It is also looking to trim costs with measures such as eliminating unnecessary plastic packaging and bringing more manufacturing back in-house. The company has turned to external contractors to deal with the surge in pandemic demand.

On Monday, the company said organic sales for the quarter rose 2%, surpassing analyst estimates of a 0.1% decline. Gross margins of were 35.9%, ahead of the 34.4% expectation.

The shares fell 4.7% in extended trading.