Invest in Clorox

The Clorox Company (CLX) is a manufacturing company that focuses its operations on consumer and institutional products which includes bleaches and cleaning materials, water filters, and auto-care products. These products are distributed locally and internationally under different brand names. In its commitment to its centennial strategy of driving long term-growth, Clorox implements innovative measures in improving its existing brands and expands continuously into its related product categories through acquisitions (link). One of its notable acquisitions includes the buying of Burt Bee’s Inc. in 2007 for its expansion to the channel of personal care products.(link)

The company’s operations are comprised of four segments namely Cleaning, Lifestyle, Household, and International. The Cleaning segment includes brand names of bleaches, home-care products, and natural cleaning laundry products such as Clorox, Clorox2, Formula 409, Pine-Sol, and Green Works. The Lifestyle segment consists of food dressings and sauces under the Hidden Valley and K C Masterpiece brand names. For the Household segment, brands like Glad, Fresh Step, and Kingsford are counted in. Lastly, the International segment takes account of the international brands for all of Clorox’s products which includes Javex, Limpido, Brita, and many more. These products are sold through mass merchandisers, warehouse clubs, retail stores, and grocery wholesalers.

 According to the conference call transcript for the first quarter of 2012 (link), Clorox is able to perform well with a 2% increase to volume and 3% increase to sales. These were brought upon by effective aggressive pricing strategies by the company in order to offset inflationary pressures on commodity costs. Actual results for the past quarter until the start of 2012 show that mixed effects were realized for the volumes for the products across the segments as there were both increase and decrease in volume levels. However, it was the higher prices and the higher margin products that lifted revenues for the company in order to deliver favorable results. (link)

Volumes are expected to decrease slowly as it usually takes 3 to 4 quarters for the consumers to adjust to the effects of the price increases. Along with the solid brand-building activities of the company, the pricing actions of the company are expected to enhance the growth of its sales and its brand. In this regard, the management maintains a positive sales outlook for the year at a range of 1% to 3% increase.   

Clorox continues to show its positive free cash flow from its operations as its competitive advantage. The company has maintained its domination in the bleach market over relatively superior competitors like Colgate-Palmolive Company (CL), Procter & Gamble Company (PG), and Kimberly-Clark (KMB). With an increase to $94 million cash inflow from last year’s $92 million, the company’s strong cash flow enables them to strengthen their major brands through R&D costs and boost investor’s confidence in returning excess cash to the stockholders through dividends and buybacks. (link)

Issues of takeover loom for Clorox as it has already rejected two attempts in 2011 by Mr. Carl C. Icahn who is the company’s largest shareholder. Right after the last takeover attempt in August 2011, the price of the shares declined by 12 cents while company shares have fallen 14% since the first offer by Mr. Icahn. (link)