Can Clorox Transform Its Pandemic Boost into Permanent Gains? | The Motley Fool

The ongoing COVID-19 pandemic has devastated countless businesses alongside its obvious human cost. But there are those companies that have benefited because their products were in high demand during the global public health crisis. One brand that unquestionably gained is The Clorox Company (NYSE:CLX). Clorox wipes were sold out of many retail locations for months in the early stages of the pandemic. But will this sales boost prove a flash in the pan for the company, or the start of more lasting growth?

Clorox got a push from the pandemic, but 2021 is less certain

Clorox’s popular wipes fall into the company’s Health and Wellness segment, which includes cleaning, professional products, vitamins, minerals and supplements. The company has three other segments: Household, including bags and wraps, grilling products and cat litter; Lifestyle, which includes food, water filtration, and natural personal care; and International sales. Humdrum stuff, until those sold-out signs appeared on supermarket cleaning product shelves across the country. 

The pandemic’s impact on Clorox’s bottom line was immediate and noticeable: In the company’s fiscal year 2020, which stretched from July 1, 2019 through June 30, 2020, and therefore included those first panicked months of the pandemic, the Health and Wellness sector saw sales of $2.75 billion, a 14% increase, and pre-tax earnings of $766 million, a 34% increase, making it the standout segment, although the others did well too. However, recalling those widespread shortages of wipes, one might ask whether Clorox would have done even better in the pandemic panic if it had had the ability, or the flexibility, to scale up manufacturing to meet the unprecedented demand.

So far this year, Clorox has been experiencing the U.S.’ return to a semblance of normality in the form of flat sales of a little under $1.8 billion in the first three months of both 2021 and 2020. Unfortunately for Clorox, net losses of $61 million in the third quarter of FY 2021 compared with net earnings of $241 million in the third quarter of FY 2020. The company points to higher manufacturing, logistics, and commodities costs shrinking its margins, and says results for the whole of its fiscal 2021, which ends June 30, are expected to be strong.

Doing good could be great for investors

Looking ahead, it’s interesting to note the kind of company Clorox is and how it aspires to be seen. To gauge by comments on the website Glassdoor, which asks current and former employees to rate their employer, Clorox is breeding a loyal workforce, always an encouraging sign in these days of generally low mutual regard between workers and their companies. As 258 reviewers see it, there is “amazing work-life balance at Clorox,” and the company boasts “great people, great work-life balance” according to another 77 reviewers. On the negative side, 51 reviewers thought “decision-making can be slow at times,” which jibes well with the observation that the company wasn’t able to fully exploit the sales potential the COVID-19 outbreak represented. Nevertheless, Glassdoor named Clorox the 12th best place to work in 2017, and 47th in 2019. Having established an enthusiastic employee base will help the company if it makes the changes it needs to in order to capitalize on the newfound popularity of its cleaning products.

Consumers (and therefore investors) should find it encouraging that Clorox is attempting to brand itself as “green”, announcing on June 15 that it is helping launch the U.S. Plastics Pact’s “Roadmap to 2025,” with the goal of “a circular economy for plastics in the United States by 2025.”

Data on shows that political contributions during the 2020 election cycle by individuals affiliated with the company all leaned blue, with donations to President Biden’s campaign totaling $58,740. In 2015, Clorox joined the UN Global Compact, committing itself to follow principles for companies in such areas as human rights, labor, environment, and anti-corruption. With half of the U.S. market and much of the European consumer market already in its grasp, this political orientation might help boost Clorox’s sales.

Clorox can capitalize

According to the Wall Street Journal, Clorox earnings per share considerably exceeded analysts’ expectations from the final quarter of 2020 through the third quarter of 2021, and their consensus recommendation for the past three months has been for investors to hold onto the stock. Out on the markets, Clorox’s stock price has unsurprisingly slipped from its high of $236.51 on July 1, 2020, but it still stood at $176.65 as of the close on June 25, still significantly above the range the shares were trading in between 2016 and 2019.

The big question mark that hangs over Clorox is whether the company can rev up its decision-making processes to significantly increase production of cleaning products, since pandemic-driven demand for them seems likely to continue in the short term. Watch carefully how the Health and Wellness sector does over the next couple of earnings periods to help determine whether the stock remains one to hold onto or buy more of.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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