Investors Clean Up on Clorox’s Gains
The Internet might be the sexy corner of Wall Street these days, but there’s also good money to be made peddling bleach and toilet cleaners. Just ask Clorox Co.’s investors.
Owing to Clorox’s canny strategy of reformulating veteran brands, international expansion and aggressive acquisitions, the Oakland-based company’s growth and stock price have surged for several years running--and show no signs of slowing down.
“Of all the companies we cover” in the household-products industry, “Clorox remains our top pick,” said analyst Carol Warner Wilke of Prudential Securities in New York.
Consider: During the last five years, Clorox’s stock has generated a sizzling total return (price gains plus dividends) of 364%--that’s an average of 37% a year--against the 178% return of the bellwether Standard & Poor’s 500 index. Clorox’s return also has outpaced those of such blue chips as General Electric Co., Coca-Cola Co. and American Express Co.
Clorox’s stock has shot up 42% this year alone; it closed Monday at $112.75, up 56 cents on the day, in composite trading on the New York Stock Exchange.
All from selling its flagship Clorox bleach and multiple varieties of its other household staples: Pine-Sol and Formula 409 general-purpose cleaners, Clorox toilet-bowl cleaner, Soft Scrub and Tilex tile cleaners, Liquid Plumr drain cleaner, Armor All auto cleaner, Brita water filters, Hidden Valley salad dressings, Kingsford charcoal, Black Flag bug spray and Fresh Step cat litter.
A remarkable 85% of Clorox’s brands are either No. 1 or 2 in their markets, and much of their success reflects Clorox’s willingness to experiment with ingredients and thus give the products new life.
Household-products makers are always touting their brands as “new and improved.” But it wasn’t until G. Craig Sullivan took over as chief executive in 1992 that Clorox began a companywide campaign to tweak its flagship brands based on intensive consumer surveys.
For instance, Clorox found that people weren’t wild about Pine-Sol’s pine smell, so it added a lemon scent. Sales took off. Same with Clorox bleach. Despite its dominance of the bleach market, consumers didn’t like its heavy chlorine odor, so Clorox toned it down--and watched sales improve.
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Overall, Clorox is changing or developing new versions of dozens of its brands sold all over the world. “The company has 46 new products in the home-cleaning pipeline, and more new initiatives in its bleach business than it’s had in the past 20 years,” analyst Warner Wilke said.
And now Clorox is poised to test its skills on other household lines, having agreed in October to pay $1.6 billion to acquire First Brands Corp., which makes Glad plastic bags, Scoop Away and Jonny Cat litter, StarterLogg fire logs and STP auto additives.
The deal, which is part of Clorox’s strategy of further diversifying from its core bleach and cleaning groups, would swell Clorox’s sales to about $4 billion a year from $2.7 billion.
The merger also would help Clorox spread its overhead, distribution and promotion costs over a broader base of business in the cat litter, auto-products and fireplace markets.
Clorox officials declined to be interviewed while the First Brands deal is pending. But Sullivan has said that cutting costs would take Clorox only so far, and that its prosperity depended on increasing its sales and taking market share from others by extending the reach of its core brands.
Clorox was started in 1913 by five Oakland entrepreneurs who invested $100 each to set up a liquid bleach factory. They came up with the name Clorox by merging the words “chlorine” and “sodium hydroxide,” which together form the active ingredient in bleach.
But when the 1990s dawned, Clorox was anything but a highflier. Though profitable, it suffered from stagnant brands, meager growth, excessive costs and minimal exposure to overseas markets.
That changed when Sullivan, then a 20-year Clorox veteran, was tapped as CEO. Besides cutting expenses, rolling out reinvented versions of Clorox’s existing brands and buying other companies, Sullivan also has pushed Clorox overseas.
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Today, Clorox draws about 18% of its sales from international markets, and that figure will exceed 20% after the First Brands purchase. Several of Clorox’s acquisitions have involved buying foreign companies, especially in Latin America.
All of which helped Clorox post a 20% gain in earnings for its fiscal year ended June 30, to $298 million from $249 million the previous year, on an 8% sales gain to $2.74 billion from $2.53 billion.
The stock’s heights reflect investors’ optimism: The share price now is 39 times the company’s most recent four quarters’ earnings per share.
And unlike some larger consumer products firms whose shares have pulled back sharply recently, Clorox’s stock is off just 4% from its recent record high of $117.50.
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James F. Peltz can be reached by e-mail at james.peltz@latimes.com.
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Beyond Bleach
Brand tinkering, foreign expansion and acquisitions have boosted Clorox and its shares, which have outpaced the broader stock market since 1995.
Quarterly and latest:
Monday: $112.75
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Source: Bloomberg News
