Clorox Earnings: Hardy Advance in Margins Stands to Power Brand Spending; Shares a Deal

Wide-moat Clorox closed the books on another tumultuous year on solid footing following an August 2023 cyberattack. In the fourth quarter, organic sales languished, down 3% on 2% unfavorable price/mix and 1% lower volumes. But the firm’s stringent focus on cost management yielded robust gains in gross margin, contributing nearly half of the 380-basis-point margin bounce in the quarter to a whopping 46.5% (with lower manufacturing, logistics, and commodity costs further helping to offset a modest step up in promotions). This is a far cry from the 33% trough posted in fiscal 2022’s second quarter and even outpaces the 43%-44% levels that the business has historically enjoyed. We expect Clorox will continue to scour its operations for inefficiencies to provide the fuel for further investments in its brands and capabilities—in line with the low- to midteens percentage of sales the firm allocated to marketing investments in the quarter, which outpaced the 10% of sales we think it will expend longer term.