Q2 2022 Clorox Co Earnings Call (Pre-recorded)
Speaker 1: Hello everyone, this is Lisa Berhan, Clorox's Vice President of Investor Relations. Thank you for your interest in our quarterly earnings results. In conjunction with this recording, please review our earnings release, which can be found on the cloroxcompany.com and the Investor Quarterly Results section.
Yes.
Thank you for your interest in our quarterly earnings results and.
In conjunction with this recording please review our earnings release, which can be found on the Clorox company Dot com in the Investor quarterly results section.
The falling prerecorded remarks from C O Linda rental and CFO . Kevin Jacobsen include forward looking statements that are based on management's current expectations, but may differ from actual results or outcomes.
Speaker 1: The following prerecorded remarks from CEO Linda Rendell and CFO Kevin Jacobson include forward-looking statements that are based on management's current expectations but may differ from actual results or outcomes.
In addition, these remarks refer to certain non-GAAP financial measures.
Speaker 1: In addition, these remarks refer to certain non- GAAP financial measures. Please refer to today's earnings release, which identifies various factors that could affect forward-looking statements and provides information that reconciles non- GAAP financial measures to the most directly comparable GAAP measures .
Please refer to today's earnings release, which identifies various factors that could affect forward looking statements and provides information that reconciles non-GAAP financial measures to the most directly comparable GAAP measures.
The risk factors section of the company's Form 10-K also includes further discussion of our forward looking statements.
Speaker 1: The risk factors section of the company's Form 10-K also includes further discussion of our forward-looking statements.
Thank you and I'll now turn it over to C O Linda rental Hello, everyone. Thank you for taking the time to listen to our update on Clorox with Q2 results our revised outlook for fiscal 2022, and our priorities in 2022 and beyond.
Speaker 2: Thank you, and I'll now turn it over to CO Linda Randal. Hello, everyone. Thank you for taking the time to listen to our update on Clorox's Q2 results, a revised outlook for fiscal 2022, and our priorities in 2022 and beyond.
Our second quarter performance was impacted by rising inflation and other significant cost headwinds as we continue to operate in a volatile environment.
Speaker 2: Our second quarter performance was impacted by rising inflation and other significant cost headwinds as we continue to operate in a volatile environment.
Despite these challenging conditions, we executed well on those factors under our control.
Speaker 2: despite these challenging conditions, we executed well on those factors under our control.
This includes taking strategic pricing actions and driving cost savings, while restoring supply serving our customers and advancing our consumer centric innovation pipeline and digitalization initiatives.
Speaker 2: This includes taking strategic pricing actions and driving cost savings. While restoring supply, serving our customers, and advancing our consumer-centric innovation pipeline, and digitalization initiatives.
Demand remains robust across our portfolio and our brand superiority results are better than during the height of the pandemic.
Speaker 2: Demand remains robust across our portfolio, and our brand superiority results are better than during the height of the pandemic.
While we expect this highly dynamic and challenging environment to persist over the near term and have adjusted our fiscal 2022 outlook. As a result, we are confident that we are taking the appropriate actions to manage through this period deliver profitable growth over time and build a stronger more resilient company.
Speaker 2: While we expect this highly dynamic and challenging environment to persist over the near term and have adjusted our fiscal 2022 outlook as a result, we are confident that we are taking the appropriate actions to manage through this period, deliver profitable growth over time, and build a stronger, more resilient.
With that as a backdrop, let me briefly summarize our results for the quarter before discussing the progress we're making on key priorities for the year.
Speaker 2: With that as a backdrop, let me briefly summarize our results for the quarter before discussing the progress we're making on key priorities for the year.
Net sales in the second quarter decreased 8% against 27% growth in the year ago quarter.
Speaker 2: Net sales in the second quarter decreased 8%, against 27% growth in the year ago quarter. On a two-year stack basis, sales increased 19%.
On a two year stack basis sales increased 19%.
Gross margin came in at 33% and adjusted EPS decreased 67% to 66 cents driven.
Speaker 2: Gross margin came in at 33%. An adjusted EPS decreased 67% to 66 cents, driven by higher than anticipated manufacturing, logistics and commodity costs, partially offset by our pricing and productivity action.
Driven by higher than anticipated manufacturing logistics and commodity costs, partially offset by our pricing and productivity actions.
Demand for our products continued to be strong across our portfolio, even as consumption moderated from the pandemic hi.
This underscores the strength of our brands and our demand building investments to drive category and market share growth by making the most of structural changes in consumer behavior.
Speaker 2: This underscores the strength of our brands and our demand building investments to drive category and market share growth by making the most of structural changes in consumer behavior.
These include a heightened focus on health and hygiene spending more time at home digital adoption and increased pet ownership.
Speaker 2: These include a heightened focus on health and hygiene, spending more time at home, digital adoption, and increased pet ownership.
As we've continued to make progress on supply we are growing market share across the majority of our businesses, including double digit share growth in clorox disinfecting wipes for the second consecutive quarter.
Speaker 2: As we've continued to make progress on supply, we are growing market shares across the majority of our businesses, including double-digit share growth in Chlorox disinfecting wipes for the second consecutive quarter.
We also continue to see very strong household penetration for our brands.
Speaker 2: We also continue to see very strong household penetration for our brands. HIN Valley achieved an all-time high in household penetration and bread-assets highest household penetration number in the past eight years.
And valley achieved an all time high and household penetration and brenna saw its highest household penetration number in the past eight years.
Importantly, as I mentioned, our brands are stronger today than during the height of the pandemic.
Speaker 2: Importantly, as I mentioned, our brands are stronger today than during the height of the pandemic.
75% of our brands are a superior value as measured by our consumer volumetric a record high.
Speaker 2: 75% of our brands are a superior value as measured by our consumer value metric, our record high.
This demonstrates that the continued strong investments and engaging consumers in our brands through advertising and sales promotion are paying off.
Speaker 2: This demonstrates that the continued strong investments in engaging consumers in our brands through advertising and sales promotion are paying off.
It also tells us that our focus on delivering consumer centric innovation the cornerstone of our ignite strategy is resonating.
Speaker 2: It also tells us that our focus on delivering consumer centric innovation, the cornerstone of our Ignite strategy, is resonating.
The lasting shifts in consumer behavior that I mentioned have given rise to many consumer need spaces that are inspired our innovation platforms and guided our investment choices.
Speaker 2: The lasting shifts in consumer behavior that I mentioned have given rise to many consumer needs spaces that have inspired our innovation platforms and guided our investment choices.
This has been serving us very well and broadening where our brands can go and the impact they have.
Speaker 2: This has been serving as very well and broadening where our brands can go in the impact they have.
We're creating platform based innovation that is faster to market and gives consumers better solutions for which they are willing to pay a premium generating multiyear value.
Speaker 2: Recreating platform-based innovation that is faster to market and gives consumers better solutions for which they're willing to pay a premium generating multi-year value.
This gives us conviction in our ability to deliver our higher sales go overtime.
Speaker 2: This gives us conviction in our ability to deliver our higher sales goal over time.
We have a robust multiyear innovation pipeline and early results on our most recent innovations are encouraging.
Speaker 2: We have a robust multi-year innovation pipeline, and early results on our most recent innovations are encouraged.
During Q2, we launched three new products that support consumer wellbeing and the company's ESG commitments.
Speaker 2: During Q2, we launched three new products that support consumer well-being and the company's ESG commitments.
First our clorox disinfecting mess with reusable sprayer, and refills, which we think could be a category disrupting platform that we can build on for years.
Speaker 2: First, our Clorox disinfecting mess with reusable sprayer and refills, which we think could be a category disrupting platform that we can build on for years.
Second.
Clorox multipurpose cleaner in a concentrated form with a refillable container that uses 80% less plastic and a typical 16 ounce bottle.
Speaker 2: Second, Chlorox multi-purpose cleaner and a concentrated
Speaker 2: with a fillable container that uses 80% less plastic than a typical 60-nance bottle.
And third glad force flex plus bags with Cherry Blossom, scent, which levered sensorial trends with consumers.
Speaker 2: And third, Glad Force Flex Plus Bags with Cherry Blossom Cent, which levered Sensorial Trends with consumers.
Yeah.
In addition to advancing ESG progress on innovation, we continue to make progress on eliminating waste from our packaging.
Speaker 2: In addition to advancing ESG progress on innovation, we continue to make progress on eliminating waste from our packet.
For example, as the U S plastics pact activator, we proactively collaborated across the industry and identified 11 plastic resins components and formats to be eliminated by 2025 accelerating progress towards a circular economy for plastic packaging.
Speaker 2: For example, as a U.S. Plastic's Pact activator, we proactively collaborated across the industry and identified 11 plastic resins, components, and formats to be eliminated by 2025. Accelerating progress toward a circular economy for plastic packs.
As we continue to invest in the business to drive market share and category growth. We are laser focused on successfully managing through this inflationary environment and rebuilding margins. This is one of my top priorities.
Speaker 2: As we continue to invest in the business to drive market share and category growth, we are laser focused on successfully managing through this inflationary environment and rebuilding margins. This is one of my top priorities.
We're implementing additional pricing driving cost savings and optimizing our supply chain.
Speaker 2: We are implementing additional pricing, driving cost savings, and optimizing our supply chain.
We believe that we are well positioned based on the superior value of our brands to execute additional pricing across our portfolio.
Speaker 2: We believe that we are well positioned based on the superior value of our brands to execute additional pricing across our portfolio.
We began to take pricing as soon as we restored supply on most of our brands.
Speaker 2: We began to take pricing as soon as we restored supply on most of our brands.
While it's still early we're experiencing lower elasticities than we have historically seen.
Speaker 2: While it's still early, we're experiencing lower elasticities than we have historically seen.
We're taking additional rounds of pricing on many brands, which we've already announced to our customers.
Speaker 2: We're taking additional rounds of pricing on many brands, which we have already announced to our customers. They will go into effect in the back half of fiscal 2022, which will result in the vast majority of our portfolio seeing at least one or two rounds of pricing.
They will go into effect in the back half of fiscal 2022, which will result in the vast majority of our portfolio seeing at least one or two rounds of pricing.
We're also using other net revenue management tools to aggressively improve margin over time, including price pack architecture changes mixed management and trade funds optimization.
Speaker 2: We're also using other net revenue management tools to aggressively improve margin over time, including price pack architecture changes, mixed management, and trade funds optimization.
All our business units planned to use these as more significant levers moving forward.
Speaker 2: All our business units plan to use these as more significant levers moving forward.
In addition, we are driving cost savings across the enterprise, which is a hallmark of our company.
Speaker 2: In addition, we are driving cost savings across the enterprise, which is a hallmark of our company.
We have widened the funnel of cost savings opportunities as part of our ignite strategy and are on track to achieve another strong year in spite of the challenging environment.
Speaker 2: We have widened the funnel of cost savings opportunities as part of our Ignite strategy and are on track to achieve another strong year in spite of the challenging environment.
Lastly, we are optimizing our supply chain by working to remove many of the costs that were incurred as we increased supply chain resiliency during the pandemic at the same time, we continue to invest in the business for the long term.
Speaker 2: Lastly, we are optimizing our supply chain by working to remove many of the costs that were incurred as we increase supply chain resiliency during the pandemic. At the same time, we continue to invest in the business for the long term.
As we have previously discussed this includes accelerating our digital transformation, which will strengthen our core capabilities around supply chain digital commerce innovation and brand building.
Speaker 2: As we have previously discussed, this includes accelerating our digital transformation, which will strengthen our core capabilities around supply chain, digital commerce, innovation and brand building.
Our digital transformation efforts are on track and we have begun the work on our new ERP.
Speaker 2: Our digital transformation efforts are on track and we have begun the work on our new ERP.
In summary, the fundamentals of our business are strong.
A portfolio of strong brands exposed to demand driven tailwind, which we expect will create long term opportunities for our business.
Speaker 2: In summary, the fundamentals of our business are strong. We have a portfolio of strong brands exposed to demand-driven tailwinds, which we expect will create long-term opportunities for our business, such as heightened focus on health and wellness, spending more time at home, digital adoption, and increased pet ownership.
Such as heightened focus on health and wellness spending more time at home digital adoption and increased pet ownership.
And we have a strategy that is as relevant as ever in the current environment, which will continue to fuel our growth.
Speaker 2: And we have a strategy that is as relevant as ever in the current environment, which will continue to fuel our growth.
We are navigating this volatile environment and focusing on what we can control to drive profitable growth and rebuild margin.
Speaker 2: We are navigating this volatile environment, but focusing on what we can control to drive profitable growth and rebuild margin.
This includes investing in the long term health of our business to keep our iconic and trusted brand strong and relevant.
Speaker 2: This includes investing in the long-term health of our business to keep our iconic and trusted brands strong and relevant.
And digitally transforming our company to position us well for the future.
We are confident that our efforts will strengthen our competitive position and build a stronger and more resilient company and generate long term shareholder value.
Speaker 2: and digitally transforming our company to position us well for the future.
Speaker 2: We are confident that our efforts will strengthen our competitive position, build a stronger, more resilient company, and generate long-term shareholder value.
Before I close I'd like to thank our clorox teammates worldwide for their continued resilience and dedication to living our purpose and serving our consumers customers and communities throughout this pandemic.
Speaker 2: before I close, I'd like to thank our Clorox teammates worldwide for their continued resilience and dedication to living our purpose and serving our consumers, customers, and communities throughout this panel.
For your time today and invite you to listen to a live question and answer webcast, which will begin at five P. M. Eastern time today and be available for replay on our website.
Speaker 2: Thank you for your time today. I invite you to listen to our live question and answer webcast, which will begin at 5 p.m. Eastern Time Today and be available for replay on our website.
Hello, everyone.
I will be reviewing our second quarter results.
Speaker 3: Hello everyone. Today I will be reviewing our second quarter results and updated Fiskear 22 out.
In fiscal year 'twenty two outlook.
Our second core results are down versus the prior year as we lap a record sales growth during the height of the pandemic.
Speaker 3: Our second core results are down versus a prior year. As we left record sales growth during the height of the pen.
Thank you tuna managed through a challenging cost and supply chain environment.
Speaker 3: and continue to manage to reach challenging costs and supply chain environment.
While consumer demand continues to be healthy.
The cost environment has become more challenging than we had previously expected.
Speaker 3: While consumer demand continues to be healthy, the cost environment has become more challenging
As a result.
We're taking pricing actions on the vast majority of our portfolio.
Which I'll talk more about in a moment.
Speaker 3: We've taken pricing the actions of the vast majority of our portfolio. Which I'll talk more about in a moment.
We've also continue to make strong progress on improving product availability and.
Growing market share across the majority of our portfolio.
Speaker 3: We've also put you to make strong progress on improving product availability. And growing market share across the majority of our
We believe our actions will keep us on track to return to our 3% to 5% sales target.
Speaker 3: We believe our actions will keep us on track to return to our 3 to 5% sales target.
<unk> rebuilding gross margins.
The fourth quarter of this fiscal year.
Speaker 3: and begin rebuilding Gross margins by the fourth quarter of this fiscal year. Now...
Now turning to our second quarter results.
Second quarter, net sales decreased 8% compared to 27% growth in the year ago quarter.
Speaker 3: Second quarter net sales decreased 8% compared to 27% growth in the year ago quarter.
Delivering a two year stack of 19%.
Our net sales results reflect a 10 point decline in volume.
Speaker 3: Our net sales results reflect a 10 point decline in volume and two points of fair-world price mix. As a benefit of pricing...
And two points of favorable price mix.
As the benefit of pricing starting to flow through the income statement.
Second quarter organic sales also declined 8%.
Speaker 3: Second quarter, organic sales, also declined 8%.
Gross margin for the quarter declined 1240 basis points to 33%.
Speaker 3: Gross margin for the quarter to climb 1,240 basis points to 33%.
Compared to a gross margin of 45% in the year ago quarter.
Speaker 3: Compared to Gross margin of 45% in the year ago court.
When we benefited from favorable operating leverage driven by 24% volume growth.
Speaker 3: When we benefited from fairble operating leverage, driven by 24% volume.
The decline in gross margin reflects significantly higher input costs.
Including 640 basis points of higher manufacturing and logistic.
Speaker 3: that a client grows margin reflects significantly higher input cost.
It's cost.
Speaker 3: including 640 basis points of higher manufacturing and logistics cost and 510 basis points of higher commodity cost. Gross Margin was also impacted by unfa-
And 510 basis points of higher commodity cost.
Gross margin was also impacted by unfavorable operating leverage.
As our shipments were down 10 points for the quarter.
These factors were partially offset by a 100 basis points of benefit from our pricing actions and.
Speaker 3: These factors were partially set by 100 basis points of benefit from our pricing actions, and 80 basis points of...
And 80 basis points of benefit from cost savings.
Selling administrative expenses as a percentage of net sales came in at 14, 3%.
Speaker 3: Selling administrative expenses as a percentage of net sales came in at 14.3%. Compared to 14.6% in the year-go quarter. Primarily due to lower incentive compensation.
Compared to 14, 6% in the year ago quarter.
Primarily due to lower incentive compensation expense.
And the benefit of productivity initiatives.
Partially offset by $15 million of investments to enhance our digital capabilities.
Speaker 3: Parsley offset by $15 million of investment to enhance their digital capability.
Advertising and sales promotion investment levels as a percentage of net sales came in at about 10%.
Speaker 3: Advertising and sales promotion investment levels as a percentage of net sales came in at about 10 percent Compared to about 10 percent in the year go quarter with US week
Compared to about 10% in the year ago quarter.
With U S retail spending also at about 10%.
Our second quarter effective tax rate was 23%.
Versus 21% in the year ago quarter.
Speaker 3: Our second quarter effective tax rate was 23%. Versus 21% in the year ago.
Net of these factors.
Adjusted earnings per share for the second quarter came in at 66 cents.
Speaker 3: Adjusted earnings prefer share for the second quarter came in at 66 cents versus $2.3 in the year-go quarter. In a client of 66...
Versus $2 <unk> in the year ago quarter.
A decline of 67%.
As we noted in the press release.
Adjusted EPS excludes 10 cents of impact related to our strategic investments to enhance our digital capabilities.
Speaker 3: Adjusted EPS excludes 10 cents of impact related to our strategic investments to enhance our digital capability.
Year to date net cash provided by operations was $222 million.
Speaker 3: Year-to-day net cash-provetted operations was $222 million versus $629 million in the previous period.
Versus $629 million in the previous period.
A decrease of 65%.
The decline was primarily driven by lower cash earnings and higher working capital.
Speaker 3: The decline was primarily driven by lower cash earnings and higher working capital.
Partially offset by lower tax payments in the current six month period.
Speaker 3: Parsley on set by lower tax payments in the current six months.
Now.
Turning to our updated fiscal year 'twenty two outlook.
We have update our fiscal year outlook.
Speaker 3: Now, turning to our updated Fiskier 22 Outlook. We have updated our Fiskier Outlook. Our up...
Our updated outlook anticipates improved sales performance driven.
Driven by continued strong consumer demand and a robust innovation lineup.
Speaker 3: Drim bike continues strong consumer demand and it will robust innovation life.
Which keeps us on track to return to our 3% to 5% long term net sales growth targets in the fourth quarter.
Speaker 3: which keeps us on track to return to our 3 to 5% long term net sales growth target in the fourth quarter. We now expect fiscal net sales to be down.
We now expect net sales to be down 1% to 4%.
Mainly reflecting demand moderation in the front half of the year as we lap 27% growth during the height of the pandemic.
Speaker 3: Mainly reflecting demand moderation in the friend half the year, as we left 27% growth during the high of the pending.
We expect organic sales to also be down one 4%.
Speaker 3: We expect organic sales to also be down one to four percent.
As I referenced earlier, the cost environment has become significantly more challenging than we had previously anticipated.
Speaker 3: As I referenced earlier, the cost environment has become significantly more challenging than we had previously
We now expect gross margins to decline about 750 basis points versus year ago.
Speaker 3: We now expect gross margins to decline about 750 basis points
While we're expecting higher costs across virtually every aspect of our supply chain.
Speaker 3: While we're expecting higher costs across virtually every aspect of our supply
Biggest incremental headwinds will be in higher commodity and transportation expenses.
Speaker 3: The biggest incremental headwind will be in higher commodity and transportation.
Which we now anticipate will be about $500 million higher than the last fiscal year.
Speaker 3: which we now anticipate will be about $500 million higher than the last fiscal year. Our previous guidance.
Our previous guidance was a $350 million rate increase.
To mitigate these headwinds.
Shooting well on factors we control.
Speaker 3: To mitigate these headwinds, we're executing well on the factors we control.
As soon as we restored supply and the majority of our portfolio, we began to take pricing actions on many of our brands.
Speaker 3: As soon as we restore supply in the majority of our portfolio, we began to take pricing actions on many of our brands. As we've seen the cost environment continue to worsen.
We've seen the cost environment continue to worsen we've.
We have lending even more aggressively.
They are now taking pricing on about 85% of our portfolio.
Speaker 3: and are now taking pricing on about 85% of our portfolio.
Including multiple rounds of pricing on a significant number of brands.
Speaker 3: including multiple rounds of pricing on a significant number of brands. We're already seeing the benefit of pricing flow through a PNL and expect this will increase through the remainder of the...
We're already seeing the benefit of pricing flow through our P&L.
I expect this will increase through the remainder of the fiscal year.
We're continuing to closely monitor the cost environment.
And we stand ready to take more pricing as needed to recover cost inflation and rebuild gross margin over time.
Speaker 3: and we stand ready to take more pricing as needed to recover cost inflation and rebuild gross margin over time. We're also leading into our hallmark cost
We're also leading into a hallmark cost savings program and we're on track to achieve another strong year.
While these actions keep us on track to begin rebuilding gross margin in the fourth quarter, we anticipate earnings down due to significantly higher cost inputs.
Speaker 3: While these actions keep us on track to begin rebuilding Gross Margin in the fourth quarter, we anticipate earnings due to significantly higher cost inputs.
Turning to the rest of the outlook.
We continue to expect fiscal year, selling and administrative expenses to be about 15% of net sales.
Speaker 3: We continue to expect fiscal selling and administrative expenses to be about 15% of net sales.
Which includes about one point of impact related to investments in our digital capabilities.
Speaker 3: which includes about one point of impact related to investments in our digital capabilities.
We continue to anticipate fiscal year advertising spending to be about 10% of net sales.
Speaker 3: We continue to anticipate fiscal advertising spending to be about 10% of net sale.
Reflecting our ongoing commitment to invest in our brands to build market share.
Speaker 3: Reflect your ongoing commitment to invest in our brands to build market share.
Yeah.
We continue to expect our fiscal year tax rate to be about 22% to 23%.
Speaker 3: We can keep your expect or fiscal tax rate to be about 22 to 23%.
This year over year increase.
Primarily reflects lapping several onetime benefits in the prior fiscal year.
Speaker 3: This year will be your increase, primarily reflects lapping several one-time benefits in the prior fiscal year.
Net of these factors.
We now anticipate fiscal year adjusted EPS to be between $4 25.
Speaker 3: We now anticipate this gear at JSC DPS to be between $4.25 and $4.00.
And $4 50.
As we can do to manage through these near term challenges, we're keeping our eye on the long term.
Speaker 3: As we continue to manage through these near-term challenges, we're keeping eye eye on the long...
We built strong brands.
It was to take the necessary pricing actions to rebuild gross margins, while also maintaining our topline momentum.
Speaker 3: rebuild strong brands that enable us to take the necessary pricing actions to rebuild gross margins while also maintaining our top-line momentum. We're leaning into our well-established cost saving.
We're leaning into a well established cost savings program.
And we are optimizing our supply chain.
At the same time, we're also investing in our strategic digital capabilities.
Speaker 3: At the same time, we're also investing in our strategic digital capabilities. I'm confident that
I am confident that these short and long term actions taken.
Taken together.
To help us mitigate these near term challenges.
Speaker 3: Taking together will help us mitigate these near-term challenges, strengthen our brands, and ensure we're built...
Strengthen our brands and.
And ensure we are building a stronger more resilient clorox.
Thank you.