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Clorox posts solid FQ3 results, lifts sales and EPS duidance

Clorox, a US producer and marketer of non-durable household products, with brands such as Glad, Hidden Valley, and Burt Bees, among others, issued solid financials for its fiscal 2016 third quarter ended March 31. Revenues increased 1.8% y-o-y to $1.426 bn and surpassed consensus estimate of $1.412 bn. The improvement was driven by gains from volume growth and higher prices, which was somewhat negated by a 3% impact from unfavorable currency effects. On a currency-neutral basis, revenues increased 5% in the reported quarter. Volumes jumped 4%, aided by strength noted in all business segments. Backed by efficient cost savings, lower commodity costs and improved pricing, operating income rose 8.3% to $261 mn, and operating margin expanded 110 basis points to 18.3%. Adjusted earnings per share jumped 12% to $1.21 comfortably beating analysts’ average projection of $1.10.

Clorox also announced that with the aim of strengthening its portfolio, it had acquired Renew Life Holdings Corporation from Swander Pace Capital for nearly $290 mn. Renew Life, which is a leading name in the dietary health space, is expected to boost Clorox’s sales by roughly 2 percentage points in fiscal 2017.

Although management continues to expect fiscal 2016 to bear the brunt of adverse currency fluctuations, greater competition and sluggish global economies, it remains confident of its core business strategies. Clorox now expects fiscal 2016 sales growth in a range of 1-2% compared with a flat to 1% increase projected earlier. On a currency-neutral basis, sales are expected to rise 4-5%. EBIT margin is forecast to expand 50 basis points, and adjusted EPS guidance was raised to $4.85-4.95 from $4.75-4.90 projected earlier.

Recently, shares Clorox exceeded their 50-day moving average. I expect growth to continue, with medium-term target at $140.