Clorox's (CLX) Long-Term Strategy Bode Well: Here's Why

The Clorox Company (NYSE:CLX) (NYSE:CL) looks good on the back of its long-term initiatives, solid fourth-quarter fiscal 2017 results, strong brand portfolio and a disciplined capital strategy.

Let’s find out more about the stock, which also boasts a long-term earnings growth rate of 6.6%.

2020 Strategy

Clorox remains keen on the smooth execution of its 2020 Strategy, which is aimed at boosting growth for the improvement of categories and overall market share. In fact, the whole strategy is aimed at achieving certain long-term aspirations, including growing net sales by 3−5%, improvement of EBIT margin by 25−50 basis points, and generating free cash flow of 10−12% of sales, all on a yearly basis.

We note that the company is well on track with its 2020 Strategy, which is meant to be achieved through key accelerators like investment in brands; development of eCommerce; technological advancements; enhancement of growth culture and focus on the 3Ds – desire, decision and delight.

Sturdy Q4 Results & Favorable Outlook

Clorox posted solid fourth-quarter fiscal 2017 results, wherein both the top and bottom lines grew year over year and topped estimates. Notably, earnings marked the third straight quarter of a beat, while sales reverted to its positive surprise track after a miss in the last quarter.

While the bottom line gained from strong sales and cost-savings, the top line was fueled by higher volumes, better International pricing and benefits from RenewLife (acquired in May 2016). Further, sales grew year over year in each segment in the quarter. The company’s fiscal 2017 performance also remained robust with solid top- and bottom-line growth year over year. (Read More: Clorox Q4 Earnings & Sales Beat the Zacks Consensus)

Further, management is encouraged by its International operations, and expects pricing and cost savings to continue driving results. It expects fiscal 2018 to represent another year of strong earnings and sales growth. For fiscal 2018, Clorox expects sales to grow in a range of 2–4%, and earnings from continuing operations to rise 3–7% year over year.

Other Strengths

We believe Clorox's diversified brand portfolio places the company well above its peers to generate above-average industry growth and sustain itself in the currently challenging environment.

In fact, its focus on boosting sales through brands is well-evident from its constant innovations and marketing strategies to drive top-line growth. Alongside, it maintains a disciplined capital allocation strategy, making investments to develop its business while using the excess cash to lower debts and enhance shareholder returns.

Concerns/Weakness

However, the stock is not devoid of concerns/headwinds, which might dampen its performance in the near term. Clorox’s significant international presence exposes it to major foreign currency risks (especially in Argentina), which have hurt results for a while in the past. Also, currency headwinds are expected to have one point adverse impact on sales growth in fiscal 2018.

Additionally, Clorox faces intense competition from other well-established players in the consumer products industry, such as Church & Dwight Co., Inc. (NYSE:CHD) , Colgate-Palmolive Company (NYSE:CL) and The Procter & Gamble Company (NYSE:PG) on the basis of pricing, promotional activities and new product introductions.

Bottom Line

While these headwinds, along with a retail landscape that is expected to be more competitive in fiscal 2018, the company’s focus on its 2020 strategy and continued investments in innovating products and brands, will help drive results.

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