Release Date: May 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Clorox Co (CLX, Financial) delivered its 10th consecutive quarter of gross margin expansion, demonstrating strong operational efficiency.
• The company maintained overall market share despite a challenging consumer environment, indicating brand strength and resilience.
• Clorox Co (CLX) continues to invest in its innovation pipeline and business transformation, positioning itself for future growth.
• The company has a strong portfolio of trusted brands that play an essential role in consumers' daily lives, providing a stable foundation.
• Clorox Co (CLX) has successfully implemented ERP transitions in Canada and financial planning tools, enhancing operational capabilities.

Negative Points

• US consumer sentiment weakened substantially in the second half of the third quarter, impacting sales negatively.
• Macroeconomic and geopolitical uncertainties have led to changes in shopping behaviors, resulting in temporary category impacts.
• The company faces headwinds from tariffs, with an expected unmitigated impact of about $100 million over a 12-month run rate.
• Retail destocking, particularly in the household segment, has affected sales and is expected to continue impacting Q4.
• Competitive promotional activity, especially in the Glad category, has pressured pricing and market dynamics.

Q & A Highlights

Q: What is driving the category weakness in Clorox's traditionally resilient categories, and how long might this last? A: Linda Rendle, CEO, explained that while Clorox's categories are generally resilient, they have seen a low single-digit decline due to macroeconomic uncertainties and changes in consumer behavior. Consumers are prioritizing essential purchases and adjusting their spending, but they are not significantly changing their at-home behavior or trading down to private labels. The duration of this weakness is uncertain due to ongoing geopolitical and economic volatility.

Q: How does Clorox plan to mitigate the impact of tariffs on gross margins? A: Luc Bellet, CFO, stated that Clorox's exposure to tariffs is limited, with an unmitigated impact expected to be around $100 million annually. The company plans to mitigate this through changes in sourcing, supply chain adjustments, potential reformulations, productivity improvements, and targeted strategic pricing.

Q: Can you provide more details on the ERP transition and its impact on organic sales? A: Linda Rendle noted that the ERP transition is on track, with retailers building inventory to mitigate potential risks. Luc Bellet added that retailers are expected to build about 1.5 weeks of inventory, which could impact Q4 organic sales growth by 7% to 11%. The majority of the impact will reverse in the first quarter of the next fiscal year.

Q: How is Clorox addressing promotional activity and innovation in light of weaker consumer sentiment? A: Linda Rendle mentioned that promotional activity has normalized to pre-COVID levels, with some categories like Glad experiencing higher promotions due to competitive discounting. Clorox is focusing on innovation that delivers superior value, with premium products like Scentiva and toilet wands performing well. The company is ensuring it has the right price-value mix across its portfolio.

Q: How is Clorox approaching M&A in the current environment? A: Linda Rendle emphasized that Clorox is focused on controlling what it can and delivering strong earnings performance. The company has made strategic divestitures to strengthen its financial profile and is open to M&A opportunities that align with its goals. However, the primary focus remains on ensuring the core business is healthy and resilient.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.