Core Insights - The Clorox Company (CLX) reported first-quarter fiscal 2026 results with both revenue and earnings exceeding Zacks Consensus Estimates but showing a year-over-year decline [1][12] - The company achieved a significant milestone by launching a new enterprise resource planning (ERP) system in the U.S., enhancing its digital capabilities and operational adaptability [2][12] Financial Performance - Adjusted earnings were reported at 85 cents per share, surpassing the Zacks Consensus Estimate of 78 cents, but reflecting a 54% decrease from $1.86 per share in the same quarter last year [4][12] - Net sales totaled $1.43 billion, down 19% year-over-year, primarily due to lower shipments related to the ERP transition, although it exceeded the consensus estimate of $1.38 billion [5][12] - Gross profit fell 26.1% year-over-year to $596 million, with gross margin contracting by 410 basis points to 41.7% due to reduced volumes and increased manufacturing and logistics costs [6][12] Segment Performance - The Health and Wellness segment saw a 19% decline in sales to $565 million, with a 16-point decrease in volume and a three-point unfavorable price mix [7] - The Household segment reported a 19% decrease in net sales to $362 million, attributed to a one-point unfavorable price mix and lower volumes [8] - The Lifestyle segment experienced a 23% drop in sales to $245 million, reflecting a one-point negative price mix and lower volumes [9] - The International segment's net sales decreased by 2% to $253 million, impacted by lower volumes and shipments related to the ERP transition [10] Financial Position - Clorox ended the quarter with cash and cash equivalents of $166 million, long-term debt of $2.49 billion, and stockholders' deficit equity of $22 million, excluding non-controlling interest [11] Guidance for FY26 - Management maintains its fiscal 2026 outlook for net sales, gross margin, and adjusted EPS, projecting a net sales decline of 6-10% compared to the prior year [13][14] - Organic sales are expected to decrease by 5-9%, largely due to a 7.5 percentage point decline from the reversal of incremental shipments made in the previous year [14] - The gross margin is projected to decline by 50-100 basis points, with a significant portion attributed to the ERP-related shipment impact from the prior year [15] - Earnings per share (EPS) guidance is set between $5.60 and $5.95, indicating a year-over-year decrease of 9-14% [17] - Adjusted EPS is anticipated to be between $5.95 and $6.30, reflecting a decline of 18-23% from the previous year [18]

Core Insights - The article emphasizes the investment philosophy focused on small cap companies, highlighting the importance of identifying mispriced securities through understanding financial drivers and utilizing DCF model valuation [1]. Investment Philosophy - The investment approach is not confined to traditional categories such as value, dividend, or growth investing, but rather considers all prospects of a stock to assess risk-to-reward [1].

Core Insights - Clorox is nearing the completion of its ERP project, having overcome significant challenges during the implementation phase [3][5] - The ERP update is expected to enhance operational efficiency, provide better insights, and improve supply chain visibility [4][5] - The overall digital transformation plan is projected to cost $580 million, exceeding initial estimates of $500 million, raising concerns among analysts [6] Implementation Progress - The company has completed the majority of its ERP implementation in the U.S. and is optimistic about leveraging the new technology [7] - A smaller implementation is anticipated to have minimal impact, allowing teams to fully utilize the ERP system soon [3][5] Financial Impact - The ERP overhaul has negatively affected Clorox's market share during the first quarter, particularly in August, although there were signs of recovery in September and October [7] - The company is now focused on rebuilding momentum and maximizing the value derived from the ERP system [7]

Core Insights - Clorox (CLX) has experienced a significant decline in share price over the past year due to post-pandemic normalization, rising input costs, and the impact of a cyberattack, shifting its perception from a defensive growth stock to a value stock with stable fundamentals and strong brands [2][3] Financial Performance - Clorox's stock is currently trading approximately 33% lower than its one-year peak and at a price-to-sales multiple below the average of the past three years, indicating a modest valuation despite solid margins [3][6] - Revenue growth has been limited, with a 0.2% increase over the last twelve months and a 0.04% increase over the last three-year average, but this reflects a margin and value play [6] - The company has maintained an average operating margin of approximately 12.7% over the past three years, successfully avoiding significant margin collapse in the last twelve months [6] Market Position - Clorox operates in various segments, offering consumer and professional products worldwide, primarily distributed through mass retailers, grocery stores, warehouse clubs, dollar shops, and hardware centers [4] - Despite its promising fundamentals, Clorox's stock has a price-to-earnings multiple of 16.6, suggesting a modest valuation relative to its performance [6] Historical Performance and Risks - Clorox has faced substantial declines in the past, including a drop of over 54% during the Dot-Com crash and nearly 44% amid the inflation shock in 2022, indicating that even strong companies can experience setbacks during market shifts [8]

Core Viewpoint - The company reported a revenue of $1.43 billion for Q1 of fiscal year 2026, reflecting a year-over-year decline of 19%, but slightly exceeding analyst expectations of $1.4 billion [1] Financial Performance - Revenue for Q1 was $1.43 billion, down 19% year-over-year [1] - Adjusted earnings per share were $0.85, surpassing the expected $0.79 [1] Operational Insights - The decline in revenue was attributed to a decrease in shipment volumes [1] - The decrease in shipments is linked to the company's ongoing modernization of its Enterprise Resource Planning (ERP) software in the U.S. [1] Future Outlook - The company maintains its full-year revenue and profit expectations, indicating that the impact of the software changes is largely behind them [1] - Plans are in place to accelerate profit growth in the second half of the fiscal year [1]

Financial Data and Key Metrics Changes - In Q1, the company experienced an organic sales decline of approximately 3%, with underlying performance showing a negative 1% when excluding ERP impacts and out-of-stock issues [27][32] - The company expects organic sales growth in the front half of the fiscal year to be negative, low single digits, while the back half is anticipated to be positive, low single digits [9][10] - The company refined its estimates for ERP-related sales headwinds from a range of 7-8 percentage points to a point estimate of 7.5 percentage points [72] Business Line Data and Key Metrics Changes - The company launched a new ERP system in the U.S., which is expected to strengthen operations and unlock new value streams [5] - Innovations are planned across major brands, including new products in Glad and Brita, aimed at capturing consumer interest and addressing market challenges [38][39] - The trash bags and cat litter categories are facing increased promotional activity and competitive pressure, impacting market share [41][42] Market Data and Key Metrics Changes - The U.S. retail category is expected to grow at a muted rate of 0-1%, below historical averages, with improvements anticipated in the back half of the year [9][10] - The company is observing a stable consumer wallet, but significant changes in spending behavior are noted, leading to a more competitive environment [16][17] - The company is monitoring private label competition closely, particularly in categories like Brita and bleach, where some consumers are trading down [65][66] Company Strategy and Development Direction - The company is focused on demand creation plans to deliver superior value to consumers and reinvigorate category growth [5] - There is a strong emphasis on innovation across all major brands, with plans to launch new products that address consumer needs and preferences [39] - The company maintains a long-term focus on strengthening its core brands while exploring portfolio adjustments to enhance shareholder value [53][55] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate the current competitive landscape and deliver expected performance despite challenges [96] - The company is optimistic about the benefits of the new ERP system, which is expected to enhance operational efficiency and consumer value [84] - Management is closely watching consumer behavior and market dynamics, indicating a readiness to adapt strategies as needed [81] Other Important Information - The company has seen a slight improvement in commodity costs, leading to a more favorable outlook for input costs and inflation [21][22] - Promotional spending has increased in certain categories, but overall promotional activity remains rational [17] Q&A Session Summary Question: Can you provide insights on organic sales growth expectations for the second quarter and the rest of the year? - Management indicated that organic sales growth in the front half would be negative, low single digits, while the back half is expected to show positive growth driven by innovation and improved market share [9][10] Question: How is the competitive environment affecting promotions and pricing strategies? - Management noted increased promotions in certain categories, with a generally rational competitive environment, while also emphasizing the need to balance short-term share loss with long-term value creation [16][17] Question: What is the company's outlook on gross margins and cost pressures? - Management expects gross margins to expand in the back half of the year, despite some operational challenges and increased trade spending [23][24] Question: How is the company addressing market share challenges in key categories? - Management acknowledged a decline in market share due to ERP implementation but expressed confidence in plans to regain share through innovation and targeted spending [32][33] Question: Can you elaborate on the company's innovation plans for the second half of the year? - Management highlighted ongoing innovations across major brands, including new product launches in Glad and Brita, aimed at capturing consumer interest and addressing competitive pressures [38][39]

Financial Data and Key Metrics Changes - In Q1, the company experienced organic sales growth decline of about 3 points, with underlying performance at approximately -1 when excluding ERP impacts [27][28] - The company expects organic sales growth in the front half of the year to be negative, low single digits, while the back half is anticipated to be positive, low single digits [9][10] - The company refined its estimates for ERP transition impacts from a range of 7-8 points of negative sales headwind to a point estimate of 7.5 points [72] Business Line Data and Key Metrics Changes - The company launched a new ERP system in the U.S., which has strengthened its digital backbone and unlocked new value streams [5] - Innovations are planned across major brands, including new products in Glad and Brita, aimed at capturing consumer interest and addressing market needs [38][39] - The trash and cat litter categories are facing increased promotional activity and competitive pressure, impacting market share [41][42] Market Data and Key Metrics Changes - The U.S. retail category is expected to grow at a muted rate of 0%-1%, below historical averages, with improvements anticipated in the back half of the year [9][10] - The company is observing a generally rational competitive environment, although promotional spending has increased in certain categories [16][17] - The company has seen stable household penetration for its major brands, with Clorox brand penetration increasing significantly [33] Company Strategy and Development Direction - The company is focused on demand creation plans to deliver superior value to consumers and reinvigorate category growth [5] - There is a long-term focus on strengthening core brands and ensuring better value offerings to consumers [53][54] - The company is actively reviewing its portfolio for potential divestitures and acquisitions to enhance shareholder value [55][56] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the stress consumers are under, leading to cautious and value-seeking shopping behaviors [16] - The company is optimistic about the back half of the year, driven by innovation and improved execution plans [80][81] - Management is closely monitoring consumer behavior and market dynamics to adjust strategies accordingly [81] Other Important Information - The company expects robust gross margin expansion in Q3 and Q4, despite facing some operational challenges in Q1 due to ERP implementation [23] - Input costs and inflation are projected to increase by about $70 million for the year, which is more favorable than previous estimates [21][22] Q&A Session Summary Question: Insights on organic sales cadence and category growth - Management indicated that organic sales growth in the front half would be negative, while the back half is expected to show improvement driven by innovation and market share recovery [9][10] Question: Competitive environment and promotional activity - Management noted increased promotions in certain categories but described the overall competitive environment as rational [16][17] Question: Impact of ERP on market share - The company experienced a loss in market share due to ERP implementation challenges but is focused on regaining share through refined plans and innovations [32] Question: Future portfolio actions - Management emphasized a long-term focus on strengthening core brands while remaining open to portfolio adjustments as needed [53][54] Question: Inventory trends and destocking - The company is not currently experiencing material destocking and has largely rebuilt inventories post-ERP implementation [60] Question: Price mix and competitive pressures - Management acknowledged ongoing headwinds from value-seeking behavior and channel shifting, with expectations for price mix to remain negative but improving [91]

Financial Data and Key Metrics Changes - In Q1, organic sales declined by approximately 3%, with a favorable timing shift contributing to this decline [27][28] - The company expects organic sales growth in the back half of the year to be positive, low single digits, while the front half is anticipated to be negative, low single digits [7][8] - Input costs and inflation are projected to increase by about $70 million for the full year, which is $20 million more favorable than previous estimates [21][22] Business Line Data and Key Metrics Changes - The U.S. retail category is expected to grow at a muted rate of 0-1%, still below historical averages [7] - Innovations are planned in key businesses, including new product launches and expansions of existing platforms, which are expected to drive consumption improvement [8][9] - The trash and cat litter businesses are experiencing increased promotional activity and competitive pressure, impacting market share [41][42] Market Data and Key Metrics Changes - The competitive environment remains rational, with some categories experiencing increased promotions, particularly in trash and cat litter [16][17] - The company has seen a decline in market share due to ERP implementation challenges, but is focused on regaining share through innovation and demand creation [31][32] Company Strategy and Development Direction - The company is focused on reinvigorating category growth and delivering superior value to consumers through a robust demand creation plan [4] - The successful launch of a new ERP system is seen as a foundational step to strengthen the company's digital backbone and unlock new value streams [4] - The company is actively reviewing its portfolio to ensure it aligns with long-term growth objectives, including divesting underperforming segments [56][57] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the stress consumers are under, which is influencing shopping behaviors and category growth [15][16] - The company remains optimistic about the back half of the year, driven by innovation and improved execution plans [81][82] - Management is closely monitoring consumer behavior and market dynamics to adjust strategies as needed [81][82] Other Important Information - The company has largely recovered its inventories post-ERP implementation and is back to normal fill rates with retailers [91] - The promotional environment is expected to remain competitive, with ongoing adjustments to pricing and promotional strategies [20][21] Q&A Session Summary Question: Insights on organic sales cadence and category growth - Management indicated that organic sales growth in the front half would be negative, while the back half is expected to be positive, driven by consumption improvement and market share gains [7][8] Question: Environment for promotions and competitive landscape - The competitive environment is rational, with increased promotions in certain categories, but overall promotional spending remains manageable [16][17] Question: Market share trends and demand creation activities - Management noted a decline in market share due to ERP challenges but is focused on regaining share through innovation and effective demand creation [31][32] Question: Gross margin outlook and inflation impact - The company expects moderate inflation and has adjusted its gross margin outlook to reflect more favorable input costs [21][22] Question: Inventory trends and destocking behavior - Management confirmed that they are not experiencing material destocking and have largely rebuilt inventories post-ERP [62] Question: Future portfolio actions and strategic focus - The company is taking a long-term view on its portfolio, focusing on strengthening core brands and exploring opportunities for growth [54][56]

Financial Performance - For the fiscal quarter ended September 30, 2025, net sales decreased by 19% to $1,429 million compared to $1,762 million in the prior period[82]. - Gross profit for the same period was $596 million, reflecting a 26% decrease from $807 million, with gross margin dropping from 45.8% to 41.7%[85]. - Diluted net earnings per share decreased by 19% to $0.65, down from $0.80 in the prior period, primarily due to lower net sales[92]. - Total net sales decreased by 19% to $1,429 million for the three months ended September 30, 2025, compared to $1,762 million for the same period in 2024[1]. - Segment adjusted EBIT for the reportable segments totaled $208 million, down 47% from $396 million in the prior year[1]. - Earnings before income taxes decreased to $107 million in Q3 2025 from $177 million in Q3 2024, representing a decline of 39.3%[122]. - Adjusted EBIT for Q3 2025 was $160 million, down from $332 million in Q3 2024, a decrease of 51.8%[122]. Segment Performance - Health and Wellness segment net sales fell by 19% to $565 million, with segment adjusted EBIT decreasing by 47% to $124 million[95]. - Household segment net sales also decreased by 19% to $362 million, with segment adjusted EBIT down 55% to $27 million[96]. - Lifestyle segment net sales dropped 23% to $245 million, with segment adjusted EBIT declining 42% to $38 million[97]. - International segment net sales decreased by 2% to $253 million, with segment adjusted EBIT down 46% to $19 million[98]. - Corporate and Other segment net sales plummeted by 89% to $4 million due to the divestiture of the Better Health VMS business[100]. Expenses and Investments - Selling and administrative expenses were $277 million, a 1% decrease from $281 million, but as a percentage of net sales, it increased by 350 basis points to 19.4%[86]. - Advertising costs decreased by 17% to $166 million, but as a percentage of net sales, it increased from 11.4% to 11.6%[87]. - Research and development costs were $28 million, a 10% decrease from $31 million, with the percentage of net sales increasing from 1.8% to 2.0%[88]. - The company incurred $32 million in operating expenses related to digital capabilities and productivity enhancements in Q3 2025, compared to $29 million in Q3 2024, an increase of 10.3%[125]. - Approximately 75% of the total investment in digital capabilities is expected to represent incremental operating costs, primarily related to ERP implementation[124]. - The company anticipates that 70% of the incremental operating costs will be associated with the ERP implementation, with the remaining costs for complementary technologies[124]. Cash Flow and Dividends - Net cash provided by operations was $93 million, a decrease from $221 million in the prior year, primarily due to lower cash earnings[104]. - The company maintained a $1,200 million revolving credit agreement with no borrowings as of September 30, 2025[113]. - Dividends per share declared increased to $2.48 from $2.44 in the prior year, with total dividends paid remaining at $151 million[116]. Future Outlook and Risks - The Company is in the stabilization phase of its ERP transition, with total incremental transformational investment expected to be approximately $580 million[79]. - The Company anticipates a volatile operating environment for the remainder of fiscal year 2026, with continued macroeconomic uncertainty impacting consumer spending[80]. - The company continues to monitor macroeconomic conditions, including inflationary pressures and evolving trade policies, which may impact operations[75][76]. - Forward-looking statements indicate potential risks including inflation, supply chain disruptions, and geopolitical tensions that could impact future performance[128]. - The company emphasizes that the costs associated with the digital transformation are not reflective of ongoing operational costs and will not be incurred post-implementation[127]. - The divestiture of the Better Health VMS business positively impacted net sales growth by 2% in Q3 2025[126]. - The company expects the strategic investments in digital capabilities to cease at the end of the investment period, which is not expected to recur in the foreseeable future[123]. Taxation - The effective tax rate on earnings was 23.4%, down from 41.8% in the prior period, primarily due to the nondeductibility of the loss on the divestiture of the Better Health VMS business[91].

Core Insights - The cleaning-products company experienced a 19% decline in first-quarter sales, totaling $1.43 billion, attributed to shipment changes in preparation for an ERP system transition [1] Group 1 - The company's first-quarter sales fell significantly by 19% [1] - Total sales for the first quarter amounted to $1.43 billion [1] - The decline in sales was linked to shipment changes made in anticipation of an ERP system transition [1]