Original Source: FD (FAIR DISCLOSURE) WIRE
. Steve Austenfeld, Clorox, VP IR . Larry Peiros, Clorox, EVP, COO
. Dan Heinrich, Clorox, SVP, CFO . Don Knauss, Clorox, Chairman, CEO . Amy Chasen, Goldman Sachs, Analyst . Ali Dibadj, Sanford Bernstein, Analyst . Chris Ferrara, Merrill Lynch, Analyst . Bill Schmitz, Deutsche Bank, Analyst . Nik Modi, UBS, Analyst . Lauren Lieberman, Lehman Brothers, Analyst . John Faucher, JPMorgan, Analyst
. Connie Maneaty, BMO Capital Markets, Analyst . Filippe Goossens, Credit Suisse, Analyst . Kathleen Reed, Stanford Financial, Analyst
. Wendy Nicholson, Citigroup, Analyst . Jason Gere, Wachovia Capital Markets, Analyst . Alice Longley, Buckingham Research, Analyst . Fred Speece, Speece Thorson Capital Group, Analyst
CLX reported 2Q08 diluted EPS (included about $0.02 from restructuring related charges and $0.02 of dilution from Burt's Bees acquisition) of $0.65. Expects FY08 diluted EPS (net of factors) to be $3.20-3.35.
A. Key Data From Call 1. 2Q08 diluted EPS (included about $0.02 from restructuring related charges and $0.02 of dilution from Burt's Bees acquisition) = $0.65. 2. 2Q08 GM = 40.4%. 3. 2Q08 CapEx = $45m. 4. FY08 diluted EPS guidance (net of factors) = $3.20-3.35.
S1. 2Q08 Operating Results (L.P.) 1. Highlights: 1. Had a strong 2Q08 across the business and a good 1H08. 2. 2Q08 sales were up 8% and volume was up 6%. 1. Excluding the impact of the bleach acquisition and one month of Burt's Bees volume, base business volume grew 4%. 3. Grew volume in six of eight North American business units. 4. Shares in track channels helps the deal overall despite
economic pressure on consumers. 5. Renewed focus on grocery retailers continues to pay off with a much improved trend in the grocery channel behind increased focus and increased investment.
6. Saw volume growth in both tracked and untracked channels.
7. Results from bleach business acquired in Canada, Latin America
in FY07 remain on track or even slightly ahead of plan.
1. Beginning to transition Canadian bleach business from Javex brand to Clorox brand. 2. Converting the product line to the compact ultra format, best standard in the US. 8. Going forward, Co. will be supplying Canada from existing US manufacturing network. 9. On Nov. 30, completed the Burt's Bees acquisition and Co. is including Burt's Dec. results in financial statements.
1. Transition has been smooth. 10. For 2Q08, including the two months prior to acquisition, Burt's Bees delivered strong 23% sales growth. 1. Had significant share growth across the core lip, skin, face, and body natural personal-care categories.
11. Burt's Bees has opportunities for distribution expansion.
1. Excited to be placing lip balm in all Wal-Mart stores as well a broader product offering with four-foot in line displays in about 500 Wal-Mart stores. 12. (indiscernible) the brand starts in Feb. with a great print campaign focusing on the benefits of the natural ingredients in Burt's products compared to ingredients in some traditional personal-care products. 1. Burt's Bees also has a strong pipeline of new products in the back half of the year. 13. Base Business: 1. Had strong volume growth despite a continued high level of competitive activity, particularly in Clorox Disinfecting Wipes and Clorox 2 Color Safe Bleach.
2. Home-care shipments contributed significantly to overall gains, primarily driven by Clorox Disinfecting Wipes, behind momentum from low-streak product improvement and incremental merchandizing support in response to continued intense competitive environment. 3. Maintains a strong leadership share position in wipes despite heavy spending by several competitors in the category. 4. Seeing positive results from demand building activities behind Clorox 2.
5. Feels good about the plans Co. has in place to address competition in the Color Safe Bleach category. 14. In late Dec., began shipping new Green Works line in natural cleaning products in the US, Canada, and Puerto Rico. 1. This is most exciting launch in recent history. 2. Like Burt's Bees acquisition, it is generating a lot of positive response throughout CLX. 15. Cat Litter Business:
1. Delivered all-time record shipments of Fresh Step Scoopable
Litter and 21st consecutive qtr. of YoverY volume growth. 2. In Jan., began shipping an exciting product (indiscernible) called Fresh Expressions, which builds on the activated carbon odor elimination platform that has fueled Fresh Step's growth over the past year.
3. New product features two scents, lavender and (indiscernible).
4. It uses essential oil to create a more pleasant aroma than
other scented litters which does not have the benefit of odor eliminating carbon. 2. Other Details: 1. International: 1. Saw strong volume trends with the biggest growth in Latin America. 2. Driving growth was increased shipments of bleach and dilutable cleaners in Argentina, also contributing were higher shipments of bags and wraps, cleaning utensils and auto care products in Australia. 2. Commodities continue to be Co.'s biggest challenge. 1. In 2Q08, commodity costs remained higher than original estimates, particularly for resin. 2. Cost per agricultural commodities also remained very high. 3. Continues to project a decline in resin cost later in FY08, as new supply comes online in the Middle East. 4. The starting point for the decline in resin is quite a bit higher than what was reflected in original estimates. 5. Prices are likely to be higher vs. the previous year for the remainder of FY08.
6. To help offset the impact of commodity pressure, Co. has increased prices on Hidden Valley salad dressings, Kingsford charcoal and Armor All and STP auto care products. 7. Plans to increase prices at an avg. of 7% on Glad trash bags and GladWare disposable containers effective mid-Feb. 1. All of these pricing actions are based on recent commodity cost increases and have been successfully executed with retail partners. 3. Closely attuned to concerns about US economy and consumer spending. 1. Does not believe that Co.'s category will be dramatically impacted as people tend to buy bleach and other household staples even in difficult economic times. 4. Overall, both base business and acquisitions are driving
healthy topline growth. 1. Taking the right steps to mitigate continuing commodity pressure and manage margins. 5. Successfully accelerating growth and beginning to deliver on the promise of Centennial Strategy.
S2. 2Q08 Financial Results (D.H.) 1. Highlights: 1. Pleased with 2Q08 results, especially given the current environment of very high oil and commodity prices. 2. For 2Q08, delivered $0.65 in diluted EPS reflecting strong topline results across the business.
3. Sales grew 8% including about three points combined from the
bleach and Burt's Bees acquisitions. 1. Excluding the impact of acquisitions, organic growth was in line with long-term sales growth target of 3-5%. 4. Made increased investments vs. year ago in trade-promotion spending to support brands in a highly competitive environment. 1. Even with these increased investments, sales growth outpaced volume growth due to favorable FX and the benefit of price increases. 5. Continues to anticipate increased YoverY investments and trade-promotion spending in 2H08. 6. As expected, 2Q08 GM declined, coming in at 40.4% vs. 42% in 2Q07. 7. Decline resulted from: 1. GM benefited about 170 BP from cost savings and about 40 BP from price increases.
2. These positive impacts were more than offset by: 1. About 170 BP from commodity cost increases primarily from resin and agricultural commodities. 2. About 70 BP from logistics and manufacturing, which
includes diesel. 3. About 80 BP from other costs, primarily related to increased investments behind trade and consumer spending.
3. GM was negatively impacted another 50 BP from a purchase accounting step-up in inventory values associated with Burt's Bees acquisition.
8. 2Q08 advertising came in at 9.2% of sales. 1. Consistent with prior discussions, continues to anticipate advertising at about 9-10% of sales for the year as Co. balances this with increased investments and trade-promotion spending to support brands in this highly competitive
environment. 2. Taking together, investments in advertising and trade-promotion spending are greater than they were a year ago on both the dollar and percent of sales basis. 9. Despite increased commodity costs, Co. remains strongly committed to investing in brands. 10. Strong volume growth in 1H08 in spite of competitive
pressure, supports Co.'s belief that this has been a good
investment strategy. 11. Interest expense increased vs. year ago due to increased debt levels associated with financing Burt's Bees acquisition and the accelerated share repurchase agreement.
12. Intends to use free cash flow to reduce debt levels back to
[3.0 to 1] debt-to-EBITDA ratio or lower. 13. 2Q08 tax rate was about 28%, lower than year ago due to [selling] certain tax matters. 14. In recent periods, Co. has benefited from some favorable tax settlements. 1. The timing of tax settlements are difficult to predict and can create tax rate volatility in the periods they occur. 2. Anticipates the tax rate will likely be around 35% overtime. 15. Diluted EPS came in at $0.65, included about $0.02 from …