NEW YORK, N.Y. – Clorox Co. had to raise prices to combat higher costs. But doing so is also driving away some customers.
The consumer products maker is paying more for materials and manufacturing, which hurt its gross margins in the July-September quarter.
The higher prices helped boost revenue 3 per cent, and overall sales volume increased 2 per cent, meaning customers kept buying many products.
Revenue got a boost from new items like the “on the go” bottles from the Brita water filter unit and offerings in the Burt’s Bees personal care line, and from international growth.
But the higher prices drove down sales volume on laundry products and Glad trash bags. In August, Clorox said it had raised the price of Glad trash bags by 10 per cent this year, on top of a 5 per cent increase last year. The company also said in August that it had raised prices on Clorox liquid bleach by 12 per cent and Clorox 2 Stain Fighter & Color Booster detergent by 5 per cent.
In the fiscal first quarter, net income plummeted nearly 40 per cent despite the revenue gain. That decline was largely because the company benefited in the year-ago period from selling its auto care business. If that gain was excluded, then net income would have fallen only 7 per cent in this quarter.
After adjusting for one-time items, per-share earnings were 98 cents, beating analysts’ expectations of 94 cents.
Overall revenue of $1.31 billion edged past analysts’ expectations of $1.3 billion.
Shares fell 77 cents, or 1.2 per cent, to $65.09 in afternoon trading.
International revenue grew the most, rising 9 per cent compared to smaller gains in the lifestyle unit, which includes Hidden Valley salad dressings and Brita water filters, and the household unit, which includes Kingsford charcoal and Fresh Step cat litter. Revenue fell 2 per cent in the cleaning unit.
International revenue was helped by expansions in “small emerging countries” in Asia and the Middle East, Clorox said. Many companies are courting customers from a new class of upwardly mobile workers in emerging markets, as U.S. customers are squeezed by the weak economy.
International revenue makes up about 20 per cent of Clorox’s total revenue, though the company doesn’t break down those sales by country or region.
The higher costs for materials and manufacturing pushed down the gross margin, which measures profitability as the per cent of revenue left over after the company pays its costs. Though revenue rose 3 per cent, the cost of making those products rose nearly 8 per cent. The gross margin fell to 41.8 per cent from 44.3 per cent of sales.
Clorox expects that higher commodity expenses will cost it an additional $140 million to $150 million for the year and higher manufacturing expenses will cost it another $40 million to $50 million.
But Steve Robb, who is about to take over the chief financial officer job, said he expects the company can hold the gross margin flat for the rest of the fiscal year by cutting expenses and as higher prices continue to take effect.
Clorox kept in place its predictions for revenue growth of 1 to 3 per cent and per-share earnings of $4 to $4.10 for the fiscal year.
The company said it also spent about $12 million in advisory fees fighting off a takeover attempt from activist investor Carl Icahn.
Icahn had offered to buy the company in July and simultaneously urged it to try to sell itself to a competitor, saying it would be worth more under one of those options. Clorox resisted, saying his offers undervalued the company. Icahn also tried to replace the board of directors with his own nominees, but withdrew in September after deciding that many shareholders would not support his nominees.
Icahn remains the company’s largest shareholder, according to data compiled by FactSet.
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