Clorox Net Income Better Than Expected

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Clorox Co. (CLX) Thursday said quarterly net income fell due to higher raw material costs and advertising spending, though earnings per share exceeded expectations.

Consumer products makers such as Clorox have been pressured by higher costs for resins and other materials for months. Clorox already raised prices on its namesake bleach and some Glad items and now plans to increase prices on Glad food bags and cat litter to help mitigate the hike in costs.

Net income in the company's fiscal fourth quarter, ended June 30, fell to $156 mill earlier.

Clorox had 155 million average shares outstanding during the most recent fourth quarter, down from 215 million a year earlier.

Clorox said earnings per share got a lift from its share exchange with Henkel KgaA (search), a slightly favorable tax rate and a foreign currency gain.

Analysts, on average, expected Oakland, Calif.-based Clorox to post a net profit of 94 cents per share, according to Reuters Estimates.

Sales rose 6 percent to $1.25 billion, boosted by a 4 percent rise in quarterly volume, price increases, and some modestly favorable foreign exchange rates.

Clorox, which makes Kingsford charcoal (search), said it would introduce a new charcoal product in January and expects sales to be hurt in the fiscal second quarter ahead of the release. The company said it would spend $10 million to $15 million in the second quarter on the new product.

Chairman and Chief Executive Jerry Johnston said during a conference call that Clorox would launch a "gamechanger" new product this year, probably in the second half. Clorox calls products that are new to a category, such as the 2004 launch of the ToiletWand, gamechangers.

Clorox said it would increase prices on Glad food bags by 7 percent this month and implement a 4.5 percent increase for Fresh Step and Scoop Away cat litter in October.

"In 2006, raw materials remain a wild card, and the company continues to aggressively pursue price increases, with volume impact yet to be seen in critical laundry and home care categories," said Deutsche Bank analyst William Schmitz.

Price increases taken since January have gone as well as or better than projections, Clorox said during the call.

Gross margin fell 160 basis points to 44.1 percent in the quarter, weighed down by higher costs, but still came in ahead of some analysts' forecasts.

"We think the stock will trade higher on the positive gross margin result versus expectations, which should somewhat alleviate investor concerns heading into fiscal 2006," said JP Morgan's John Faucher, who rates Clorox "neutral."

Clorox shares ended the day up 95 cents, or 1.7 percent, at $56.83 on the New York Stock Exchange after reaching $56.95 earlier in the day.

The company stood by its outlook for fiscal 2006, with a 3 percent to 5 percent rise in sales, and earnings of $3 to $3.11 per share. Clorox forecast earnings of 65 cents to 72 cents a share for the first quarter and 50 cents to 57 cents a share for the second quarter.

Analysts, on average, expect Clorox to earn 68 cents per share in the current first quarter and 63 cents per share in the second quarter, but those second-quarter forecasts did not include the spending on the new charcoal product.

Clorox also said it would stop giving forecasts during the last month of each quarter unless it feels that circumstances call for an update, but will still provide forecasts when it issues quarterly results.