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Clorox feels the pinch of energy costs and Katrina


By Shobhana Chandra, Bloomberg News

Household products maker Clorox Co. said soaring energy costs following Hurricane Katrina will cut profit this year and force the company to raise prices on almost half its products in January.

Profit from continuing operations will rise to $2.91 to $3.06 a share in the fiscal year ending in June, Oakland-based Clorox said Tuesday. The company in August forecast $3 to $3.11 a share. Clorox also took 10 cents off the top of this quarter's forecast.

Chief Executive Gerald Johnston said the company will charge more for about 40 percent of products and cut expenses to contend with higher costs for fuel, raw materials and oil resin used in packaging. Procter & Gamble Co. and Kimberly-Clark Corp. have also boosted prices this year as oil hit record highs.

"Energy costs have risen faster than anybody had expected," said Franklin Morton, research director at Chicago-based Ariel Capital Management, which manages $21 billion, including 3.5 million Clorox shares as of June 30. "It's going to take time for Clorox's price increases to go into effect, putting pressure on the September and December quarters."

Profit in the second quarter ending Dec. 31 will decline to 41 to 47 cents a share, lower than its August forecast of 50 to 57 cents, Clorox said. The average profit estimate of 11 analysts surveyed by Thomson Financial was 55 cents a share.

Shares of Clorox fell 77 cents, or 1.4 percent, to $53.81 on the New York Stock Exchange. They have declined 8.7 percent this year.

Clorox didn't specify the brands or size of the increases planned for Jan. 2, and said it is in the process offrom Business 1

informing retailers.

Clorox is raising prices 4.5 percent on cat litter this month after taking increases of 7 percent on Glad food bags in August and 9 percent on liquid bleach in July. Clorox also boosted prices on Glad trash bags and GladWare containers by about 12 percent in February.

Price increases taken last quarter didn't hurt sales as expected, Clorox said Tuesday. The company said revenue in the first quarter ended Sept. 30 probably rose 5 to 6 percent, more than its August forecast of 3 to 5 percent.

"Excluding commodity pressures, Clorox fundamentals seem as strong as they've been in years," William Schmitz, a Greenwich, Conn.-based analyst at Deutsche Bank, wrote in a report. He rates Clorox "hold" and doesn't own the shares. "With little to no leeway to negotiate contract pricing with petrochemical suppliers, it is no surprise that earnings were at risk."

Hurricanes Katrina and Rita hit at a time when prices for energy and raw materials were already high. The U.S. consumer price index rose 3.6 percent for the year ended in August, its biggest gain in four years. Minus food and energy, the index rose 2.1 percent.

Oil and natural gas and resin are the biggest trouble spots for consumer goods makers including Clorox and Kimberly-Clark, and to a lesser extent for Procter & Gamble and Colgate-Palmolive Co., Chris Ferrara, an analyst at Merrill Lynch in New York, wrote in a Sept. 29 report.

Resin accounts for about 10 percent of Clorox's cost of goods sold, according to estimates by Ferrara. Chlor-alkali, used in bleach and household cleaners, accounts for as much as 5 percent, he said.

Commodity costs crimped profits in prior quarters at companies including Clorox and Kimberly-Clark, the maker of Huggies diapers and Kleenex tissue. Crude oil is 29 percent higher than a year ago and touched a record $70.85 a barrel on Aug. 30.

First-quarter profit from continuing operations was in the range of 68 to 72 cents a share, Clorox said Tuesday in a preliminary earnings statement. It had forecast profit on the same basis of 65 to 72 cents. The company, which will report full results on Nov. 3, didn't provide net income figures.