(Bloomberg) -- Clorox (NYSE:CLX) bet that Americans would continue snapping up disinfectants after the pandemic faded hasn’t paid off so far — and it doesn’t look like it will.
The wipes and bleach maker is grappling with falling revenue and profit as consumption wanes and costs climb. Annual sales dropped 3% to $7.1 billion in the year through June from a year earlier, and analysts expect another decline in the fiscal year that ends mid-2023. Adjusted earnings per share will also dip in the period, according to estimates.
Companies in industries from e-commerce to cleaning were counting on consumer habits developed during lockdowns to stick, but now inflation is forcing Americans to scrutinize their budgets just as concerns over Covid-19 subside. Clorox, which reports quarterly earnings on Tuesday, is also dealing with high costs for materials and transportation. The Oakland, California-based firm is restructuring its business, and people familiar with the matter say Clorox removed employees from some upper-level posts as it seeks savings.
“They were not alone in the view that consumers would be forever changed by the pandemic,” Barclays (LON:BARC) Plc analyst Lauren Lieberman said in an interview. “What was different was the degree to which Clorox thought it would be the case.”
The company’s shares have declined about 40% from their pandemic-fueled record high in August 2020, while the S&P 500 Consumer Staples Sector Index has risen 17% since then.
Clorox’s products range from Brita water filters to Hidden Valley Ranch salad dressing, but wipes, bleach and multipurpose cleaners account for about 27% of revenues, Bank of America (NYSE:BAC) Securities Inc. analyst Anna Lizzul estimates. In response to frantic demand earlier in the pandemic, the company added a new line at a factory in Georgia and signed contracts with third-party manufacturers.
It has unwound the agreements in recent quarters as demand for wipes has returned to normal, with the share of American adults who are very worried about the pandemic steadily declining this year to the lowest since March 2020, according to polling firm Morning Consult. Sales of cleaning wipes slid by more than 25% in the year ended Sept. 30, according to data firm Numerator.
Barclays estimates that Clorox’s revenue will have grown at a compound annual rate of 2.7% between fiscal years 2019 and 2023, in line with the company’s prior long-term target of 2% to 4%. Clorox raised both ends of the range by one percentage point in February 2021.
“It’s not an unwind to zero,” Lieberman said. “You’re kind of where you would’ve been with or without the pandemic.”
A Clorox representative declined to comment ahead of the company’s earnings report.
New Structure
Clorox Chief Executive Officer Linda Rendle, who took over the CEO job in September 2020, recently announced a new operating model that she said is “driving growth and productivity.” The restructure involved cutting 100 jobs, or 2% of the non-manufacturing workforce, with several senior employees losing their jobs as the company removed layers of management, people familiar with the matter said. The changes went into effect Oct. 3.
The position of general manager for the international unit was eliminated. The chiefs of the company’s four regional business groups now report to Chris Hyder, the newly minted group president of the health and hygiene division, which oversees US cleaning, professional products, and the international business.
The areas of consumer research, product research and design lost headcount, the people said. Meanwhile, Rebecca Dunphey took over as president of the care and connection unit, which oversees businesses such as Glad bags, Burt’s Bees natural skincare and Kingsford charcoal. The company is expected to provide more details on its reorganization when it reports results.
Clorox has also launched new products and raised prices to offset higher costs.
People still care more about sanitizing than they did before, Rendle told investors at a conference in September. And revenue at Clorox’s health and wellness segment, which includes cleaning products, was higher in the 12 months through June than in fiscal 2019 — even if it was down from the pandemic high.
But demand for the company’s cleaning and disinfecting products will continue moderating in the 12 months ending in mid-2023, the company said in August. It also expects a double-digit decline in the quarter that runs through September due to outsize demand a year earlier when the delta variant of Covid-19 swept through the US.
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