Clorox Washes Out of Detergent Business
Clorox Co., suffering from eroding sales of its signature bleach product, has decided to scrub its laundry detergent business after three years of being pummeled by Procter & Gamble and other big rivals.
The company, based in Oakland, said Friday that the action and a planned corporate overhaul will result in a one-time charge in the fiscal fourth quarter that will slash full-year earnings after taxes by $80 million. In the year ended June 30, the company earned $153.6 million on revenue of nearly $1.5 billion.
“The steps we are taking will make Clorox a stronger and more profitable company,” Clorox Chairman and Chief Executive Charles R. (Chick) Weaver said in a prepared statement. He added that Clorox expects to report a profit for the current year despite the $125-million pretax charge in the fourth quarter.
Securities analysts had been agitating for such changes for some time, and Wall Street immediately signaled its approval. In composite trading on the New York Stock Exchange on Friday, Clorox shares closed at $40, up $2.375, with 682,000 shares changing hands.
“People were hoping they would get out of that business,” said Bonita Austin, with the New York brokerage firm of Wertheim Schroder & Co. “It (the detergent) was clearly losing money.”
However, the strategy shift catches Clorox in a painful period when it has been struggling to expand into new businesses and further reduce its dependence on its mainstay liquid bleach and an offshoot, Clorox 2, a color-safe bleach. Sales of chlorine bleach have been flat, and new power detergents containing bleach have threatened to make Clorox 2 obsolete.
In an effort to grow, the company has embarked on a strategy of buying brands and developing products, some of which stray far from its core businesses.
Adding to its cadre of household products--which include Soft Scrub, Tilex mildew stain remover, Liquid-Plumr drain cleaner, bottled water and cat litter--Clorox last June bought Pine-Sol cleaner and Combat insecticide products from American Cyanamid for $465 million. It has also expanded into frozen dinners and no-cholesterol, low-fat salad dressings. A bar soap called Satine was pulled from testing in March.
Most curious, a former Clorox brand manager told Advertising Age earlier this month, has been the recent introduction of the Kingsford Pro Grill, priced at $169. The company maintains that the product is a natural extension of Clorox’s charcoal and barbecue products, including Kingsford charcoal, Match Light briquettes and K.C. Masterpiece barbecue sauce.
Clorox’s decision to phase out its detergent ends a short-lived but gutsy gamble for a company unused to pitting a new product against the established heavyweights of giants such as Procter & Gamble, its former owner. Clorox was a one-product wonder in 1969 when P&G; was forced to spin it off in an antitrust case.
Clorox entered the laundry detergent market in 1988, when 85% of the market was controlled by Procter & Gamble, Unilever (now Lever Bros.) and Colgate-Palmolive. Their popular brands and heavy spending on marketing made it difficult for Clorox to make headway.
Moreover, the detergent category in recent months has gone through its most revolutionary change in decades with the advent of “super-concentrated” brands that have quickly supplanted the standard variety. Clorox was forced to scurry to develop its own Ultra Clorox, on top of the estimated $100 million that had been spent on the initial product rollout. According to a recent story in Advertising Age, Clorox attained just a 3% share, whereas P&G;’s Tide With Bleach soared to the No. 2 spot behind regular Tide in the powdered-detergent category.
The company said its Clorox Detergent was initially successful but has not been “sufficiently profitable.”
“The long-term outlook for our brand is not promising,” Weaver said in his statement.
Weaver said the company has decided to concentrate on its basic brands, including Pine-Sol and Combat. According to spokesman Fred Reicker, the company is just starting its national introduction of Clorox Clean Up, a product that mixes liquid bleach and household cleaners. It also has just brought out Control, a cat litter with a patented odor-control formula.
After Clorox’s announcement, Standard & Poor’s reaffirmed its A-1-plus commercial paper rating for Clorox, noting that, after the fourth quarter, “profitability is expected to improve somewhat beyond its current solid levels once the burden of developing the detergent business is removed.”
The company continues to have a strong balance sheet, the rating agency noted. Spokesman Reicker said the company still has cash for acquisitions, although about $100 million of $125 million cash on hand was used last year for the Pine-Sol and Combat purchase.
Clorox Co. at a Glance
* Business: Consumer products
* Headquarters: Oakland
* Employees: 5,500
* Sales (for third quarter ended March 31): $421 million
* Net income (for third quarter ended March 31): $32.5 million
* Products: Clorox Liquid Bleach, Clorox 2 dry and liquid color-safe bleach, Formula 409 cleaner, Tilex mildew stain remover, Liquid-Plumr drain opener, Pine-Sol cleaner, Combat insecticides, Soft Scrub, Deer Park bottled water, Take Heart and Hidden Valley Ranch salad dressings, K.C. Masterpiece barbecue sauce, Kingsford charcoal and Litter Green, Fresh Step and Control cat litter. Clorox products are sold in 73 countries.
Soap Opera: The U.S. Detergent Market
* Americans spend nearly $4 billion a year on detergents, about 60% of that for powders and 40% for liquids.
* New “super-concentrated” brands, usually called “ultra” and packed in squatty boxes made of recycled paperboard, have all but eliminated the jumbo and giant sizes of detergent boxes from store shelves. The new ultra products require less powder per wash load and appeal to consumers and grocers because of the smaller packages.
* Procter & Gamble has about 53% of the market, with products including Tide, Cheer, Oxydol and Gain.
* Lever Bros., maker of Wisk, All, Breeze and other detergents, is second with about 23%.
* Colgate-Palmolive, with Fab Ultra, Action, Dynamo and Fresh Start, is third with about 8%.
Source: HAPPI (Household and Personal Products Industry magazine)
