Raymond James Still Sidelined As Clorox Cleans Up Prices, Gross Margins

Clorox Co CLX’s second-quarter earnings soundly beat Street estimates and prompted a 7-percent stock rise Monday, but steady outlook stifled Raymond James’ excitement.

The Rating

Raymond James analyst Joseph Altobello maintained a Market Perform rating on the stock.

The Thesis

Raymond James attributed bottom-line strength to price increases and cost savings initiatives, which, coupled with supply chain investments, drove a gross-margin inflection.

“Here, the benefits of pricing (+220 bps) and cost savings (+140 bps) more than offset higher manufacturing and logistics costs (-190 bps) and commodity costs (-120 bps),” Altobello wrote in a note, noting additional aid from a lower-than-expected tax rate.

Clorox plans to continue improving price competitiveness and targets Burt’s Bees for the next round of raises.

Raymond James doesn't expect the strategy to impact revenue, which recently swelled on volume improvement amid forex headwinds.

“However, management kept its fiscal 2019 outlook unchanged given the timing of supply chain investment, greater FX headwinds, as well as a likely increase in trade promotion spending for Glad,” Altobello wrote. “Thus, we continue to believe the stock’s valuation fairly reflects the company’s solid overall execution amid this challenging environment.”

Price Action

At time of publication, Clorox shares traded lower by 2.8 percent at $153.81.

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