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 Clorox Company reported a 19% decline in net sales for the first quarter of fiscal year 2026, primarily due to lower shipments related to the ERP transition and the divestiture of the Better Health VMS business [9][11][15] - The company is focused on accelerating profitable growth through innovation and demand-creation initiatives following the ERP rollout, which has caused temporary disruptions [4][13] Financial Performance - Net sales decreased to $1.43 billion, with organic sales down 17%, largely attributed to lower shipment volumes as retailers depleted inventory built up prior to the ERP transition [9][12] - Gross margin fell by 410 basis points to 41.7%, driven by lower volume and increased manufacturing and logistics costs [9][15] - Diluted EPS decreased by 19% to $0.65, while adjusted EPS saw a more significant drop of 54% to $0.85, reflecting the impact of the ERP transition [9][27] ERP Transition Impact - The ERP transition led to a significant inventory build-up in the previous quarter, resulting in a 7.5-point decline in year-over-year sales growth as retailers reduced their stock [8][11] - The company expects the inventory drawdown to negatively impact fiscal year 2026 earnings per share by approximately $0.90 [11][15] Strategic Initiatives - Clorox is investing in digital capabilities and productivity enhancements, with a total investment of approximately $580 million expected to yield long-term efficiencies [23][24] - The company has introduced new products aligned with emerging consumer trends, aiming to deliver superior value [10][4] Outlook - The company maintains its full-year outlook for net sales, gross margin, and adjusted EPS, anticipating a decline of 6% to 10% in net sales for fiscal year 2026 [13][15] - Adjusted EPS is projected to be between $5.95 and $6.30, reflecting a decrease of 23% to 18% year-over-year [15][32]

Financial Data and Key Metrics Changes - The company reported a tenth consecutive quarter of gross margin expansion, indicating strong fundamentals despite a challenging consumer environment [7][8] - The updated outlook reflects anticipated pressure on consumers and retailers, impacting sales growth expectations [7][8] Business Line Data and Key Metrics Changes - The household products category experienced a low single-digit decline, attributed to changing consumer spending behaviors and macroeconomic uncertainties [12][19] - The company maintained overall market shares across its portfolio, with specific categories showing resilience despite competitive pressures [7][12] Market Data and Key Metrics Changes - U.S. consumer sentiment weakened significantly in the latter half of the third quarter, leading to changes in shopping behaviors and impacting sales [7][19] - Retailers engaged in inventory destocking, particularly in the household segment, which affected sales figures [36][39] Company Strategy and Development Direction - The company remains focused on its long-term strategy, emphasizing organic sales growth and strong earnings growth despite current market challenges [8][18] - The management is actively working on mitigating tariff impacts through strategic pricing and supply chain adjustments [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of its essential product categories, despite current consumer spending pressures [7][21] - The company anticipates continued challenges in the consumer environment but remains committed to navigating these uncertainties effectively [8][21] Other Important Information - The company is preparing for an ERP transition, which is expected to enhance operational efficiency and support future growth [55][59] - The management highlighted the importance of maintaining a strong balance sheet and cash flow to capitalize on potential M&A opportunities in the future [118][119] Q&A Session Summary Question: What is driving the category weakness? - Management noted that while categories typically show resilience, recent macroeconomic factors have led to a low single-digit decline in household essentials [12][19] Question: How should we think about organic sales growth given current conditions? - Management indicated that organic sales growth expectations are muted due to ongoing category softness and retailer inventory adjustments [24][88] Question: What is the expected impact of tariffs on gross margins? - The anticipated gross impact from tariffs is around $100 million annually, with efforts underway to mitigate this through various strategies [27][28] Question: Can you provide insights on promotional activity by category? - Management confirmed that promotional activity has normalized but varies by category, with some experiencing higher promotional pressures [44][46] Question: How is the ERP transition expected to impact organic sales? - The ERP transition is expected to provide a lift in organic sales, with retailers building inventory ahead of the transition to mitigate out-of-stock risks [55][59] Question: What is the company's approach to M&A in the current environment? - The company remains open to M&A opportunities but prioritizes maintaining a healthy core business and strong financial performance [118][119]

Financial Data and Key Metrics Changes - The company experienced a decline in overall market categories, with average declines in the low single digits during the third quarter [14][22] - Despite the challenges, the company maintained market shares and achieved its tenth consecutive quarter of gross margin expansion [9][10] - The gross margin for the fourth quarter is expected to be around 44%, consistent with the annual average of approximately 44.5% [40] Business Line Data and Key Metrics Changes - The household products segment faced significant competitive pressure, leading to a decline in sales, particularly in the Glad brand due to increased promotional activity [96][100] - The cleaning category showed resilience, with the company growing market share despite overall category declines [86][111] - The cat litter segment is competitive, but the company has introduced innovations that are performing well in the market [100][101] Market Data and Key Metrics Changes - Consumer sentiment weakened significantly in the second half of the third quarter, impacting shopping behaviors and leading to lower-than-expected sales [8][9] - Retailers are adjusting their inventory levels, which has resulted in some destocking, particularly in the household segment [41][44] - The company noted a shift in consumer spending towards essentials and larger purchases, impacting discretionary categories [17][78] Company Strategy and Development Direction - The company aims to continue delivering organic sales growth and strong earnings growth while navigating a challenging consumer environment [10][120] - There is a focus on innovation and maintaining a balanced portfolio that caters to both premium and value-seeking consumers [55][111] - The company is actively managing its supply chain and pricing strategies to mitigate the impact of tariffs and maintain margins [32][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of their essential product categories despite current economic uncertainties [9][23] - The outlook for fiscal year 2025 anticipates continued challenges, with organic sales growth expected to be muted [27][92] - The company is closely monitoring consumer behavior and market dynamics to adapt its strategies accordingly [23][120] Other Important Information - The company is preparing for an ERP transition, which is expected to enhance operational efficiency and inventory management [61][65] - There is a wide range in the sales outlook due to the volatility in consumer demand and retailer inventory adjustments [62][66] Q&A Session Summary Question: What is driving the category weakness? - Management noted that while categories are traditionally resilient, recent macroeconomic uncertainties have led to a low single-digit decline in sales [14][22] Question: How should we think about organic sales growth in the long term? - The company expects organic sales growth to be suppressed in the near term but anticipates a return to normal category growth over time [27][28] Question: What is the expected impact of tariffs on gross margin? - The anticipated gross impact from tariffs is around $100 million annually, with efforts underway to mitigate this through various strategies [31][32] Question: Can you provide insights on promotional activity by category? - Promotional activity has normalized overall, but some categories, like Glad, are experiencing higher promotional pressures due to competitive actions [50][51] Question: How is the ERP transition expected to impact sales? - The ERP transition is expected to lead to a build-up of inventory, which could translate into growth in the following quarters [65][66] Question: What is the company's approach to M&A in the current environment? - The company remains focused on strengthening its core business while exploring opportunities for portfolio improvement through M&A [120]