Q2 2025 Earnings Summary
- Clorox has delivered strong compounded annual sales growth within their target over the last five years, despite significant disruptions such as a pandemic, inflation, and a cyber attack. They have stabilized and rebuilt their gross margin and delivered strong earnings growth, enabling further investment in the business.
- The company is experiencing strong growth in both its International and Professional segments, driven by leading shares in the Cleaning business, successful entry into new markets with products like Cat Litter, and the ability to take pricing. Additionally, the Professional segment is seeing opportunities in new verticals, contributing to mid-single-digit growth.
- Investments in a new ERP system are expected to enhance Clorox's competitiveness and drive future productivity and cost savings. The ERP implementation will modernize the backbone of operations, enabling the company to deliver consistent, profitable growth and strengthen long-term shareholder value. Cost reductions from shutting down the legacy system are anticipated to start in the back half of next year, aiding in margin expansion and productivity improvements.
- Clorox is experiencing significant volume declines in key segments, including an 11% decrease in Household volumes, which may indicate weakening consumer demand.
- The company anticipates that gross margins will decline in the fourth quarter, due to lapping an unusually high gross margin in the prior year and increased costs, suggesting potential margin pressures.
- Increased competitive pressures in the bags and wraps category (Glad) are leading to higher trade and promotional spending, which could negatively impact profitability.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Organic Sales Growth | Q3 2025 | no prior guidance | 2% to 4% | no prior guidance |
Reported Sales Growth | Q3 2025 | no prior guidance | down mid single digits | no prior guidance |
FX Headwinds | Q3 2025 | no prior guidance | 1 point | no prior guidance |
Organic Sales Growth | Q4 2025 | no prior guidance | mid- to high single digits | no prior guidance |
Gross Margin | Q4 2025 | no prior guidance | down year-over-year vs. ~47% in Q4 2024 | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | low end of 11% to 13% range | no prior guidance |
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Margin Expansion Beyond Fiscal '25
Q: Can you sustain gross margin expansion after fiscal '25?
A: Clorox aims to rebuild gross margins back to 44% this year and plans to expand EBIT margins by 25 to 50 basis points per year starting in fiscal 2026. Management is confident, driven by productivity initiatives, the upcoming ERP conversion, and enhanced cost-saving measures like design to value and net revenue management. -
Assuming Full Control of Glad
Q: Why is Clorox taking full control of Glad now?
A: Clorox will assume full control of the Glad business in a year as the current JV agreement with P&G expires, and both parties mutually agreed not to renew. With strengthened capabilities and important retained IP, Clorox is confident in driving innovation and value in the Glad business moving forward. There's no change in the company's M&A strategy; they continue to evaluate accretive opportunities but will remain disciplined. -
Organic Sales Outlook and ERP Impact
Q: How will the ERP transition affect sales outlook?
A: Clorox expects low single-digit organic sales growth in Q3 after adjusting for a one-time pull-forward in Kingsford shipments. In Q4, organic sales growth is projected to be mid- to high single digits, primarily due to the ERP transition, which will add 1–2 points of growth by shipping ahead of consumption to build retailer inventories. This impact will reverse in the first half of next fiscal year. -
Increased Competition in Glad
Q: Is increased competition requiring more promotional spending?
A: Clorox is experiencing higher-than-expected competitive activity in the Glad trash category, with deeper discounting from competitors. The company has reacted by increasing trade spending, which is included in their outlook. They feel well-equipped to address this challenge and continue to grow share, as evidenced by Glad trash share growth in Q2. -
Returning to 3–5% Growth Rate
Q: How will you get back to 3–5% growth amid a fatigued consumer?
A: Clorox remains confident in its long-term 3–5% sales growth algorithm, expecting category growth to return to 2–2.5% when the macro environment improves. In the meantime, they're focusing on driving share gains, investing in innovation, and leveraging opportunities in professional and international businesses. The company acknowledges that in a steady-state macro environment, achieving the low end of the 3–5% range is realistic. -
Tariff Exposure
Q: What is your exposure to potential tariffs?
A: Clorox's exposure to potential tariffs is limited, with raw materials sourced from Mexico and Canada accounting for a single-digit percentage. The company manufactures products close to where they are consumed and has taken steps to onshore and nearshore production, reducing supply chain risks and tariff exposure. Tariffs are not specifically included in their outlook due to the dynamic environment. -
ERP Investment and SG&A
Q: Why are ERP costs so high, and how will SG&A evolve?
A: Clorox is undertaking a comprehensive digital transformation, including a full ERP implementation to S/4HANA, global finance upgrades, and investments in AI and data infrastructure. This multi-year investment totals $560–580 million and is now in year four. Admin expenses are elevated at 15–16% of sales due to this investment but are expected to decrease to 13% post-implementation, delivering strong returns through cost efficiencies and value creation. -
Growth in International and Professional Segments
Q: What's driving growth in international and professional businesses?
A: Clorox's international growth is propelled by strong performance in cleaning products with leading market shares, successful expansion of the cat litter business into new markets, and effective pricing strategies. In the professional segment, growth comes from penetrating new verticals like government and healthcare and increased share in the base business. They've also started to see a slight return in office occupancy. -
Financial Leadership Transition
Q: What priorities does the new CFO have?
A: Incoming CFO Luc Bellet emphasizes continuity in financial discipline and capital allocation, having been deeply involved in the IGNITE strategy and transformation efforts. The focus will be on executing the ERP implementation to modernize operations and unlock future growth opportunities while maintaining the company's commitment to driving shareholder value.