Clorox Q4 and Year Earnings Beat Expectations Despite Turmoil in Latin America

The Clorox Company, Oakland, CA, exceeded analysts’ consensus estimates for its fourth quarter and fiscal year ended June 30. An improvement in earnings per diluted share compared with the prior year was driven by improvement in the company’s operating profit due to strong gross margin results and lower administration expenses and a lower tax rate, executives said.

“We’re extremely pleased with the results we delivered for the quarter and full year, especially given economic conditions in Latin America, ” said chairman and chief executive officer Craig Sullivan. “Increased sales and volume led by new product introductions, sharp improvements in gross and operating margins, and working capital improvements each contributed to the company’s strong results-clearly, the results of improved focus and execution across the entire Clorox organization.”

Volume increased 1% and sales increased 3% in the fourth quarter, including divestitures. Leading the sales and volume growth in North America was Clorox ReadyMop, which the company introduced in January. Excluding divestitures, volume rose 4% while sales climbed 6% for the combined household products-North America and specialty products segments.

Clorox Oxygen Action multipurpose stain remover, which was introduced in April, delivered solid initial results. These positive trends were partially offset by declines in regular and color-safe bleaches due to timing of merchandising activities; bags and wraps, primarily due to competitive activity; and water-filtration systems due to higher levels of merchandising in the year-ago quarter. Partially offsetting the positive North America trends were declines in the company’s Latin America business due to continued weakness in much of South America.

As a result of deteriorating economic and operating conditions in Brazil, the company recorded a non-cash asset-impairment charge in the fourth quarter of about $29 million before taxes for its business in that country. This charge was partially offset by a tax benefit associated with the write-down of about $21 million, resulting in a net charge of nearly $8 million. Also contributing to the company’s reduced fourth quarter tax rate were various other tax benefits, partially offset by the previously announced pro-rated tax effect of the Argentina impairment charge.

Economic crises and political turmoil in South America continued to negatively impact results in this segment. Clorox has taken a number of steps to mitigate these conditions, including taking price increases, reducing the size of the organization to improve the cost structure, cutting back on discretionary spending and aggressively managing working capital. Excluding divestitures, volume in this segment declined 3% and sales declined 5%. Volume gains in Mexico, Puerto Rico and Central America were more than offset by declines in Argentina, Colombia and Chile. The segment had a pre-tax loss, mainly due to the Brazil impairment charge and costs associated with the previously announced job eliminations.

For the year, volume increased 3% and sales increased 4%. In fiscal year 2002, volume grew in eight of the company’s nine business units, delivering total company volume growth of 5%, excluding divestitures-the highest volume gain Clorox has achieved since fiscal year 1999, executives said. Sales, excluding divestitures, grew 5% compared to fiscal year 2001.

Focusing on and investing in core brands were key to the company’s top-line growth. For the year, Clorox increased advertising spending by 13% and brought several new products to market. In addition to Clorox ReadyMop, other new products introduced during the year include Armor All leather wipes, Formula 409 Orange Power cleaner, Poett Bebe dilutable cleaner and Clorox Oxygen Action stain remover.

For fiscal year 2003, Clorox expects low single-digit volume and sales growth for the first quarter and the fiscal year, reflecting solid improvements in North America shipments, partially offset by declining shipments in Latin America.