CLOROX SHARES FALL MOST IN 20 YEARS AFTER THE COMPANY FORECASTS SALES DECLINE.

SALES DECLINE

Clorox Co. plummeted the most in more than two decades after forecasting a decline in sales, casting doubt on chief executive Linda Rendle’s all-in gamble that the maker of disinfecting wipes and bleach would hang on to the pandemic-driven customers it picked up over the last year.

The company, which also sells Glad trash bags and Kingsford charcoal, posted sales of US$1.8 billion in its fiscal fourth quarter, below the lowest analyst estimate. Clorox expects organic sales, which strip out items like currency swings and acquisitions, to decline by two per cent to six per cent in the current fiscal year, with “uncertain” consumer demand playing a central role in the expected performance.

The stock fell 9.5 per cent to US$164.05 in New York on Tuesday. It was down as much as 12 per cent at one point, the biggest drop since 2000. The shares had already declined 10 per cent in 2021 through Monday’s close.

Clorox’s tone represents a dramatic shift from Rendle’s March comment that consumers’ behaviour would be “sticky,” a belief that led the company to boost its production capacity for wipes. In Tuesday’s report, the company said falling sales “were due primarily to the deceleration of shipments from peak levels during the COVID-19 pandemic” and a faster-than-expected slowdown in the health and wellness segment, which includes cleaning products. That slowdown was accompanied by a surge in costs for freight and raw materials.

“The company is confronting generational inflation and unpredictable demand for its products,” Wells Fargo analyst Chris Carey said in a research note. “This creates a need to be conservative around guidance and we think CLX is setting an outlook it believes it can hit.” However, that outlook was well below Wall Street expectations, Carey said.

Clorox’s guidance is a warning to investors about the bumpy road ahead for consumer-products companies that enjoyed a boom during the onset of the pandemic. Organic sales dropped 10 per cent in the three months ended June 30.

Clorox reported sales decreases in all but one segment. The largest decline was 17 per cent at the health and wellness unit. Household products, which include trash bags, charcoal and cat litter, also fell by eight per cent, with the company citing “moderating consumer demand.” In the lifestyle segment, which includes Hidden Valley salad dressing and Brita water filters, revenue dropped three per cent on the same trend.

Clorox’s gross margin dropped to 37.1 per cent, its narrowest in more than a decade.

In response, chief financial officer Kevin Jacobsen said Clorox is “prioritizing strong execution of the plans we have in place to rebuild our margins,” which includes price increases in “key areas.”