Operational Efficiency And Price Adjustments Will Anchor Future Success

Key Takeaways

• Active brand investment and innovation support future sales growth and earnings resilience amid market pressures.
  
• Strategic cost savings, price increases, and ERP transition aim to enhance margins and profitability.
  
• Macroeconomic uncertainties, competition, and tariffs pressure Clorox's revenue, requiring strategic adjustments to manage inventory, pricing, and supply chains.

Catalysts

Engages in the manufacture and marketing of consumer and professional products worldwide.

• Clorox is actively managing its innovation pipeline and investing in its brands, which is expected to support future organic sales growth and earnings resilience despite current market pressures.
  
• The company aims to maintain its gross margin expansion for the 11th consecutive quarter, leveraging cost savings and efficiencies which could positively impact net margins and earnings.
  
• Clorox is planning targeted, modest price increases and strategic changes in its supply chain to offset anticipated tariff impacts, which may help sustain its net margins and overall profitability.
  
• The company's upcoming ERP transition is expected to enhance operational efficiency and reduce costs over time, aligning with their longer-term EBIT margin expansion goals, thereby potentially boosting future earnings.
  
• Clorox is focused on optimizing its price pack architecture and expanding into high-growth retail channels such as mass and club stores, which could drive future revenue growth and market share gains in key categories.

Clorox Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Clorox's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.9% today to 12.8% in 3 years time.
• Analysts expect earnings to reach $975.7 million (and earnings per share of $8.22) by about May 2028, up from $694.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $810 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.1x on those 2028 earnings, down from 24.0x today. This future PE is greater than the current PE for the US Household Products industry at 18.2x.
• Analysts expect the number of shares outstanding to decline by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Clorox Future Earnings Per Share Growth

Risks

• Macroeconomic and geopolitical uncertainties have led to changes in consumer shopping behaviors, resulting in temporary category impacts and lower-than-expected sales, potentially affecting future revenue growth.
  
• The expectation of a tougher consumer environment with increased competition and slower category growth could result in continuing pressure on revenue and earnings growth in the short to medium term.
  
• Retailers are engaging in inventory destocking, particularly in the household segment, which may lead to reduced shipments and impact near-term revenue.
  
• The imposition of tariffs poses a significant risk with an expected 12-month net impact of about $100 million, which could put pressure on gross margins and require mitigations such as restructuring supply chains or pricing adjustments.
  
• Promotions in certain categories like Glad remain higher than normal due to competitive pressures, which may impact net margins and profitability if pricing adjustments do not offset the increased costs.

Valuation

• The analysts have a consensus price target of $150.006 for Clorox based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $189.0, and the most bearish reporting a price target of just $129.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.6 billion, earnings will come to $975.7 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $135.05, the analyst price target of $150.01 is 10.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.