Clorox cleans up after post-COVID normalization and a cyberattack

Key Points

• Clorox is a global diversified manufacturer of cleaning products, household and wellness brands, including Pine-Sol, Liquid-Plumr,
• Clorox is recovering from an August 2023 cyberattack that resulted in $356 million in estimated damages.
• Clorox nearly doubled fiscal Q2 2024 EPS estimates and experienced 16% YoY sales but noted that most sales increases were driven by shipments to rebuild retailer inventory due to the cyberattack.

The Clorox Co. NYSE: CLX is a household name, especially after the pandemic. The name is synonymous with disinfectants and cleaning products. Clorox is a member of the consumer staples sector along with competitors like Proctor & Gamble Co. NYSE: PG and Kimberly-Clark Co. NYSE: KMB. Its portfolio of iconic brands includes Liquid-Plumr, Glad garbage bags, Pine-Sol, and Clorox bleach and wipes.

The company has expanded its line of products beyond cleaning to include wellness and home care products that sound familiar but aren't usually associated with Clorox. The company has also fought back from a debilitating cyberattack that resulted in an estimated $356 million in damages caused by production order processing delays that led to product shortages.

Cyberattack of 2023

In August 2023, Clorox was hit with a cyberattack involving unauthorized activity that disrupted several business operations. There is speculation of ransomware. The company discovered "unauthorized activity" on its IT systems, taking several systems offline. The disruption caused several weeks of problems, including having to process some orders manually and struggling to meet demand, while production delays caused product shortages. Automated order processing resumed in September. The company invested heavily in restoring operations, and all manufacturing facilities were back online by October 2, 2023.

Diversified global brand growth

Its brands fall into three segments. All segments had higher sales volume due to retailer replenishing their inventories after the cyberattack.

Its Health and Wellness segment sells cleaning and professional products like Clorox bleach and wipes and Pine-Sol scented products. Its fiscal Q2 2024 net sales rose 25% YoY, driven by 22 points of higher volume and 3 points of favorable price mix.

Household brands sell trash bags, wraps, cat litter, and grilling products like Fresh Step cat litter and Glad trash bags. Net sales rose 9%, driven by 4 points of higher volume and 5 points of favorable price mix. Cat litter saw strong consumer demand.

Its Lifestyle segment offers personal care and water filtration like Brita water pitchers and filters and Burt's Bees. This segment also includes food products like Hidden Valley Ranch dressing and snacks. This segment had 21% net sales growth comprised of 24 points of higher volume partially offset by 3 points of unfavorable price mix.

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Clean sweep

Clorox knocked it out of the ballpark with its fiscal second-quarter 2024 earnings release. On February 1, 2024, Clorox reported fiscal Q2 2024 EPS of $2.16, crushing and beating analyst estimates for $1.09 by nearly double. Revenues grew 16% YoY to $1.99 billion, beating $1.80 billion consensus analyst estimates, compared to 1% YoY growth in the year-ago quarter. The increase was largely driven by higher volume as the company rebuilt customer inventories after the August cyberattack and favorable pricing impact. Organic sales rose 20% YoY. Gross margins rose 730 bps to 43.5%, up from 36.2% in the year-ago quarter, driven by pricing and cost-savings initiatives, which more than offset unfavorable foreign exchange rates. The company ended the quarter with $173 million in cash.

Retailer inventory rebuilding or demand-driven sales?

While the growth appears impressive, it has to be noted that the spike across the board in all segments all have to do with shipments to "rebuild retailer inventory" along with sprinkles of strong consumer demand like with cat litter. This could be a one-time event, or consumer demand could be stronger. The company stated that organic growth was 20%, and technically, organic sales should exclude one-time events. The upside full-year guidance implies strong consumer demand. Still, it is worth noting the abundant use of "driven by shipments to rebuild retailer inventory" that accompanied each category's growth metrics.

Upside guidance

Clorox issued upside guidance for the fiscal full year 2024. According to consensus analyst estimates, the company expected EPS of $5.30 to $5.50 versus $4.60. Net sales are expected in the low single digits compared to previous guidance of down mid-to-high single digits. Gross margin is expected to rise 200 bps, compared to previous flat forecasts, reflecting the benefits of its cost savings initiatives, supply chain optimization, and pricing actions, which help to mitigate the effects of supply chain inflation and the impact of the cyberattack. Advertising and sales promotion spending is expected to be 11% of net sales.

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Clorox CEO Linda Rendle commented, "We are rebuilding retailer inventories ahead of schedule, enabling us to return to merchandising and restore distribution. As a result, we made great strides in rebuilding market shares." Rendle concluded, "Importantly, throughout our out-of-stock period and recovery, we've maintained our strong brand superiority results as measured by our consumer value metric. This speaks to the power of our advantaged portfolio, the superior value of our brands and their role in consumers' daily lives."

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Daily rectangle breakout  

The daily candlestick chart on CLX illustrates a bull flag breakout pattern. CLX reached a pandemic high of $239.87 in August 2020. Shares have since fallen as low as $113.72 by November 1, 2023. CLX triggered a daily market structure low (MSL) breakout through $126.71 as it staged a rally on fiscal Q1 2024 earnings, rising to the $139.05 to $143.81 rectangle range. This range continued to consolidate in the rectangle channel from November 2023 to January 2024.

CLX formed a breakout on January 26, 2024, as it slowly ground through the upper rectangle trendline resistance at $143.81 and rose to $148.05 ahead of its fiscal Q2 2024 earnings report. The EPS and revenue blowout and raised guidance caused shares to gap to $152.97, forming a gap-fill range. The daily 50-period moving average support rose to $141.97. The daily relative strength index (RSI) surged up to the oversold 76-band. Pullback support levels are at $148.05, $143.81, $139.0