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The pandemic has created a new corporate hierarchy of winners and losers. We all know who the losers are. Any company in the travel and hospitality sector falls into that category. So do oil companies, REITs, and car manufacturers. The winners are fulfilment companies like Amazon.com Inc., big box retailers such as Walmart Inc. and Costco Wholesale Corp., and any company that offers face-to-face on-line communication. There’s also another category that some people tend to overlook. They are the companies that make products that everyone is desperately trying to buy these days – cleaners and sanitizers.
One of the firms in this sweet spot is The Clorox Company (NYSE: CLX), which recently reported its biggest sales increase in nearly a decade. In addition to bleach, which was the company’s only product when it was launched back in 1913, Clorox now produces a wide range of disinfectants for both home and institutional use. They include disinfectant wipes, Spore Defense Cleaner Disinfectant, Citrace Hospital Disinfectant, and many more.
The company experienced an unprecedented 500% surge in demand for its key cleaning products after the virus hit. Despite moving to a 24/7 production schedule and sourcing more supply from third parties, it still couldn’t keep up.
“We acknowledge our products aren’t consistently in stock, and there’s more to do,” said CEO Benno Dorer at the time. “We put Clorox disinfecting wipes on store shelves every day and find that people scoop them up almost as soon as they’re delivered. But we are partnering with our retailers to serve consumers’ needs as best we can and expect continued meaningful movement in our ability to meet demand this summer. We are also making considerable investments to increase capacity for the mid-term, applying what we’ve learned from this crisis to be prepared for a surge in demand in the future.”
Clorox produces more than disinfectants. The briquets you use on your barbeque may be from them (Kingsford). Your kitchen garbage bag may be one of their products (Glad). The product you pour in the sink to clean the drain may be theirs (Liquid Plumr). Clorox also makes Pine-Sol, Hidden Ranch salad dressings, Calm (a dietary supplement), Fresh Step cat litter, and more.
As you might expect, given the spike in demand for its products, Clorox is doing very well from a financial perspective. Third-quarter 2020 earnings showed sales growth of 15% and a 31% increase in earnings per share.
The company reported net sales of almost $1.8 billion for the three months to March 31, up from just under $1.6 billion in the year-before period. Net earnings were $241 million ($1.89 per share, fully diluted) compared with $187 million ($1.44 per share) in the third quarter of fiscal 2019. (Figures in U.S. dollars.)
Year-to-date net cash provided by operations was $806 million compared with $603 million in the year-ago period, for an increase of 34%. The company increased its earnings forecast for the current fiscal year to between $6.70 and $6.90 per diluted share.
Shortly after the results came out, Clorox announced a 5% increase in its quarterly dividend, to $1.11 per share ($4.44 per year). At the time of writing, the shares were yielding 1.9% at the new rate.
The main negative is that Clorox stock is not cheap. The shares are up by 44% so far this year, from a close of $153.54 on Dec. 31. At the current price, the trailing p/e ratio is 333.41 – not outrageous for a company whose earnings appear poised to grow, but not cheap either.
If you plan to buy, layer in over several months. That way, you can take advantage of any price dips.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
© 2020 by The Fund Library. All rights reserved.The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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