The Clorox Company (NYSE:CLX) Q4 2023 Earnings Call Transcript

The Clorox Company (NYSE:CLX) Q4 2023 Earnings Call Transcript August 2, 2023

The Clorox Company misses on earnings expectations. Reported EPS is $0.93 EPS, expectations were $1.19.

Operator: Good day, ladies and gentlemen, and welcome to The Clorox Company Fourth Quarter Fiscal Year 2023 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s call, Ms. Lisah Burhan, Vice President of Investor Relations, for The Clorox Company. Ms. Burhan, you may begin your conference.

Lisah Burhan: Thanks, Ross. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our CEO, and Kevin Jacobsen, our CFO. I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website. In just a moment, Linda will share a few opening comments, and then we’ll take your questions. During this call, we may make forward-looking statements, including about our fiscal 2024 outlook. These statements are based on management’s current expectations, but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statements section, which identifies various factors that could affect such forward-looking statements, which has been filed with the SEC.

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In addition, please refer to the non-GAAP financial information section of our earnings release and the supplemental financial schedules in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I’ll turn it over to Linda.

Linda Rendle: Hello, everyone, and thank you for joining us. We closed out fiscal year 2023 with strong results, underscoring the significant progress we’ve made against our strategic priorities. Over the course of the year, we’ve been relentlessly focused on driving top-line growth and rebuilding margins in a challenging operating environment, while continuing to invest in the long-term health of our brands, categories and capabilities. Thanks to our team’s strong execution across a comprehensive set of actions, we delivered on these commitments. For fiscal year 2023, we generated net sales growth of 4%, within our long-term target, gross margin expansion of 360 basis points and adjusted EPS growth of 24%. Our performance reflects our commitment to driving operational excellence and margin improvements, supported by the strength and resilience of our portfolio and the relevance of our IGNITE strategy.

In addition to delivering results over the short term, we made progress on our IGNITE strategy. The investments we’re making to deliver consumer inspired innovation, strengthen the superior value of our brands, advance our digital transformation and streamline our operating model, are positioning us to drive long-term profitable growth. As we look ahead to fiscal year 2024, we are clear on our priorities. While we expect the environment to remain difficult with macroeconomic uncertainty persisting, we are committed to building on our progress and have plans to enhance our value superiority at a time when it matters most to consumers. We believe these actions will enable us to continue to drive top-line growth and rebuild margins back to pre-pandemic levels and put us in a position to grow share and household penetration over the long term.

I’m confident we’re taking the appropriate actions to build a stronger, more resilient company positioned to win in the marketplace, deliver on our operational and financial goals, and create long-term value for stakeholders. With that, Kevin and I will take your questions.

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Q&A Session

Operator: [Operator Instructions] And our first question comes from Peter Grom from UBS. Please go ahead, Peter.

Peter Grom: Thanks, operator, and good afternoon, everyone. So I wanted to ask two related questions on the top-line. Maybe first, I know you called out stronger shipments in cleaning and some early shipments for back to school, but the minus 2% volume performance was certainly stronger than what we can see in the track data. Was that largely due to the shipment timing that you mentioned, or is there strength elsewhere that’s not being captured by the data? And then just second on the organic sales guidance of 2% to 4%. You mentioned a mild US recession in the back half, you provided some color on phasing starting with mid-single digit growth in 1Q. I just would be curious to get your perspective on the balance of pricing versus volume in that outlook, specifically, as we move through the year. And do you expect volume growth at some point in the back half? Thanks.

Linda Rendle: Hi, Peter. I’ll start with your first question then I’ll hand it over to Kevin. So on Q4, over-delivery versus what we had expected, as we noted, we did see stronger consumption across the board across our categories in aggregate. And that’s a result of two things, mainly. The first being elasticities continue to be better than they have been historically. And that’s an aggregate comment. You know, we see differences by category, but in aggregate, they’re favorable and trade promo has been normalizing at a slower pace than we’d expect. And we’ll continue to see that normalize as we go through fiscal year 2024, but for Q4, it wasn’t to the degree that we thought it would be. So that’s — that’s the first bucket, stronger consumption.

The second is, better operational performance by our team, and that’s just a broad statement across the supply chain. We were able to make some supply that we didn’t think we would have. Our shipments to retailers were stronger than we had expected. Just a lot of the things operationally came together with great execution and supported that growth. And then finally in Kingsford, and we spoke about in Q3, we did not perform to our expectations in Q3. We made significant adjustments to the plan, including working with retailers on category growth plans, centered in having the right merchandising and those performed significantly better than we had expected, which was great to see and the consumer reacted very favorably and retailers executed with excellence.

And those are really the big three main buckets between what we saw, and what we expected.

Kevin Jacobsen: And then, Peter, I can talk about the — our plans for fiscal year ‘24 as it relates to sales. And as you saw, we’re projecting 2% to 4% for the year. If you think about the front half and the back half, our expectations are sales to be closer to mid-single digits in the front half, excuse me, and then low single digits in the back half. And that phasing from front half to back half, I’d call out a few items. The first is, as you saw in our prepared remarks, we’re projecting a mild recession in the back half of our fiscal year, which would be the front half of calendar year ‘24. So we think that will put a little bit of pressure on consumers in our categories, and we’ve reflected that in our outlook. The other item to be aware of is we are now going to lap the four rounds of pricing we’ve taken when we get to the middle of the year.

So that fourth price increase we took last December, we will lap that when we get halfway through the year. So the second half of the year, we’ll now have lapped all the pricing we’ve taken. So as a result of that, what we expect to see is you’ll see improving volume trends as we move through the year, and you’ll see the benefit of price mix larger in the front half and then really start to tail off in the back half. And so as we get that that low single digit growth, it’ll be a combination of some price mix because we’re still doing a little bit of pricing internationally, improving volume trends, but recognizing we still think it’s going to be a difficult economic environment for consumers.

Peter Grom: Thank you, both. I’ll pass it on.

Operator: And our next question comes from Anna Lizzul from Bank of America. Please go ahead, Anna.

Anna Lizzul: Good afternoon. Thanks very much for the question. In your fiscal ‘24 guidance, you are expecting a flat to 2% net sales growth. This is a little bit below your long-term algorithm from your IGNITE strategy of that 3% to 5% annual sales growth. I was wondering if you can comment on, when you expect to return to the 3% to 5% net sales growth on a more normalized basis? And in addition, what do you see as the drivers of really achieving that sales growth longer term? Thank you.