Will Clorox (CLX) Retain Positive Earnings Trend in Q3?
The Clorox Company CLX is slated to report third-quarter fiscal 2018 results on May 2. The company has an impressive earnings history, having delivered a positive surprise in each of the past five quarters.
However, the Zacks Consensus Estimate of $1.30 for the quarter under review moved south by a penny over the last 30 days and reflects a decline of 0.8% year over year.
Let’s see how things are shaping up prior to the company’s earnings announcement.
Factors at Play
We note that Clorox witnessed significant pressure on gross margin in the fiscal second quarter, which is likely to continue in the forthcoming period. Margin was strained due to escalated input costs for commodities and tightening of transportation market. Also, results were hurt by strategic investments for growth and cost savings initiatives, which might continue to increase expenses and hurt profitability in the quarter to be reported. Meanwhile, intense competition from well-established players in the consumer products industry remains a cause for concern.
In the past three months, shares of Clorox have lost 17.5%, wider than the industry’s decline of 10.6%.
However, Clorox remains committed toward brand management and improvement in margins through cost saving and productivity initiatives. Also, it makes strategic partnerships with retail customers and evolving capabilities both in the physical world and online. Recently, management has agreed to buy Nutranext, the Florida-based dietary supplements leader, for $700 million. The deal is expected to expand Clorox’s dietary supplements business, thereby accelerating growth of its top brands in the fast-growing categories, alongside focusing on health and wellness. Additionally, it remains well on track with the smooth execution of its 2020 Strategy, which is aimed at boosting growth for the improvement of categories and overall market share.
These tailwinds might contribute to the company’s top line and boost profitability. Notably, analysts polled by Zacks expect quarterly revenues to come in at $1.51 billion, up 2.3% from the year-ago quarter.
In the light of these above-mentioned factors, let’s wait and see what lies ahead of Clorox in third-quarter fiscal 2018.
What Does the Zacks Model Say?
Our proven model does not show that Clorox is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Clorox’s Earnings ESP of -0.94% and a Zacks Rank #4 (Sell) indicate there are little chances of an earnings beat in the ensuing quarter.
As it is we caution against stocks with Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.
Stocks With Favorable Combination
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Colgate-Palmolive Company CL has an Earnings ESP of +0.69% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Church & Dwight Co., Inc. CHD has an Earnings ESP of +0.52% and a Zacks Rank of 3.
Sysco Corporation SYY has an Earnings ESP of +0.77% and a Zacks Rank #3.
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