Clorox Co. tumbles after P&G

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Clorox Co., which has styled itself a "fast follower" in new products, now is following Procter & Gamble Co. by lowering earnings forecasts and launching a "back-to-basics" movement.

In a conference call reminiscent of those held months ago by P&G, Clorox Chairman-CEO Craig Sullivan on Dec. 15 said his company had "tried to do too much too fast" and would seek a new balance by shifting focus from new products to core brands. His words echoed A.G. Lafley, who became president-CEO of P&G in June after two quarterly earnings disappointments led to Durk Jager's departure.

"I almost thought it was A.G. Lafley I was listening to," said Andrew Shore, analyst with Deutsche Bank Alex. Brown.

Clorox also dropped an earnings bombshell, saying fiscal second-quarter earnings would miss analyst estimates by about 21%-falling 9% to 30 cents a share rather than growing 15%. The company also said it would miss full-year estimates by 10% and post flat earnings for the year. Clorox stock fell to $30 1/16 in midday trading Dec. 15, down 11.5% for the day and off 30% since Nov. 24.

AD SPENDING TO REMAIN THE SAME

Despite its problems, Clorox will keep ad spending flat overall and step up advertising on some key brands during the first six months of 2001, said Jerry Johnston, president-chief operating officer. Spending will more than double for Brita water filters and Formula 409, Tilex and Pine-Sol cleaners in the first half of 2001 compared to the same period in 2000, Mr. Johnston said. Ad outlays will rise 50% on Clorox 2 color-safe bleach and 60% on Clorox's cat litter brands, including Scoop Away and Fresh Step. DDB Worldwide, San Francisco, handles all Clorox brands.

Spending during the first half of 2000 was $4.2 million on Brita, $1.2 million on Formula 409, $4.2 million on Tilex, $5.2 million on Pine-Sol, $3.2 million each on Clorox 2 and Scoop Away and $2.4 million on Fresh Step, according to Competitive Media Reporting.

Mr. Sullivan blamed a slowing economy, retailer inventory cutbacks and sliding category sales for Clorox's earnings miss. He also cited new-product missteps in the past 18 months, including Clorox's FreshCare line, the company's entry into the fabric-refreshers and home dry-cleaning categories. Home dry-cleaning, which Clorox had projected as a $500-million-a-year category, is down 33% in November from a year ago and now looks like it won't top $100 million long-term, Mr. Sullivan said.

WHAT TO BLAME?

Analysts expressed skepticism that economic conditions could be responsible for such sharp revisions. "I think there are a lot of other companies in your industry that are reporting very solid business in this quarter," said Wendy Nicholson, analyst with Salomon Smith Barney.

P&G and Colgate-Palmolive Co. both said last week they will now meet earnings forecasts.

"It's not just Clorox," Mr. Sullivan said of the sales slowdown, adding that growth in categories where Clorox competes fell by nearly half, from around 4% for the 52-week period ended in November to just over 2% in the most recent 13-week period.

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