The Clorox Company (CLX) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary shows mixed signals: strong earnings growth and organic sales growth are positive, but consumer and retailer pressure, along with inventory destocking and ERP transition challenges, create uncertainties. The Q&A reveals management's confidence in innovation and category growth, but concerns about ERP impacts and price/mix negativity persist. Overall, the sentiment is neutral as positive factors are balanced by potential risks and uncertainties.

Key Financial Performance

Top Line Growth Weaker-than-expected top line growth for Q4 and fiscal year 2025. The slowdown was attributed to macroeconomic uncertainties in the back half of the year, which stabilized in Q4 but did not normalize.

Gross Margin Strong gross margin performance for Q4 and fiscal year 2025. No specific percentage or year-over-year change was mentioned.

Earnings Strong earnings performance for Q4 and fiscal year 2025. No specific percentage or year-over-year change was mentioned.

Sales Lower-than-expected sales for Q4 when excluding the ERP retail inventory build. This was due to lapping abnormally high demand creation activities from last Q4, which followed supply restoration from the August 2023 cyber attack.

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Operating Highlights

ERP System Launch: The company launched a new ERP system in the U.S., which is a critical part of their digital foundation to better leverage data and insights for driving revenue and efficiencies.

Innovation Pipeline: Plans to lean into their innovation pipeline in the back half of the year to deliver superior experiences and value to consumers.

Consumer Behavior: Consumers are seeking better experiences, presenting opportunities for the company to innovate and capture market share.

Gross Margin and Earnings: Delivered strong gross margin and earnings performance in Q4 and fiscal year 2025.

Retail Inventory Build: Shipped higher-than-expected incremental orders to temporarily build retailer inventories in support of the ERP launch.

Digital Transformation: Advancing transformation efforts to unlock modernized capabilities and drive strong financial performance in fiscal year 2026 and beyond.

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Risk or Challenges

Macroeconomic Uncertainties: The company experienced a slowdown in consumer categories in the back half of the year due to macroeconomic uncertainties, which have not yet normalized. This could impact future sales and consumer demand.

ERP Launch and Retail Inventory Build: The company shipped higher-than-expected incremental orders to build retailer inventories in support of the ERP launch. While this is a critical digital transformation initiative, it temporarily inflated sales figures and may pose operational risks during implementation.

Value Superiority Challenges: The company did not deliver on all elements of its plans for value superiority in some businesses, particularly as consumers are stressed and demand higher value.

Cyber Attack Aftermath: The company is still rebounding from the August 2023 cyber attack, which affected supply restoration and led to lower-than-expected sales when excluding the ERP-related inventory build.

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Guidance & Outlook

Fiscal Year 2026 Outlook: The company is focused on delivering strong financial performance in fiscal year 2026 and beyond. This includes leveraging modernized capabilities and investments to win with consumers and drive revenue growth.

Innovation Pipeline: The company plans to lean into its innovation pipeline in the back half of fiscal year 2026 to meet consumer demand for better experiences.

Market Conditions: The company anticipates opportunities as consumers continue to seek better experiences, despite macroeconomic uncertainties.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you explain the gap between the implied sales performance and the consumption data?

A:Luc Bellet explained that organic sales growth was about 8%, but after accounting for a 13%-14% retailer inventory build, it resulted in a negative 5% performance. This was lower than the expected negative 3% and also lower than the consumption data, which was about negative 3%. The gap was attributed to inventory destocking and lower share performance than anticipated.

Q:What drives the confidence that consumption trends will improve in the second half?

A:Linda J. Rendle stated that the confidence is based on both category-based assumptions and actions the company is taking. Adjustments to plans to address consumer behavior, such as offering larger sizes and launching new innovation platforms in the back half of the year, are expected to support category growth and market share improvements.

Q:Is the destocking impact exacerbated by channel shifts into e-commerce?

A:Linda J. Rendle clarified that the destocking seen in Q4 was largely in line with expectations and not a structural issue. It was attributed to retailers improving inventory management. There was no material retailer destocking outside of the ERP-related plans.

Q:What was the impact of the ERP transition on Q4 performance and fiscal year '26 outlook?

A:Luc Bellet explained that the ERP transition led to a higher-than-expected retailer inventory build, equivalent to 3.5%-4% of annual sales. This caused fiscal year '25 sales to be higher by 3.5%-4% and fiscal year '26 sales to be lower by the same amount. The transition also impacted gross margin due to higher operating leverage and lower internal inventory build.

Q:What are the assumptions for category growth and promotional levels in fiscal year '26?

A:Luc Bellet stated that the midpoint of the organic sales growth range assumes U.S. categories will stabilize but not normalize, growing at 0%-1%. Promotional levels are expected to remain rational, with some heightened activity in specific categories like trash and cat litter.

Q:What are the expectations for tariff impact in fiscal year '26?

A:Luc Bellet mentioned that higher costs from tariffs are expected to be around $40 million, based on current announcements. The impact will be mitigated through sourcing changes, reformulations, productivity improvements, and targeted pricing.

Q:What is driving the improvement in the back half of fiscal year '26?

A:Linda J. Rendle explained that the improvement is driven by factors under the company's control, such as innovation, net revenue management, and execution. The company does not expect a significant change in the consumer environment but plans to reinvigorate categories through advertising and innovation.

Q:Are there any material shifts to private label in certain categories?

A:Linda J. Rendle stated that there is no material shift to private label in aggregate, except for some impact in the Glad business due to retailer assortment and channel shifts. The company is adjusting plans to capture consumers across the value cycle.

Q:What caused the pressure on the Kingsford business, and how is it positioned to improve?

A:Linda J. Rendle attributed the pressure to execution issues during key holidays like Memorial Day, including less merchandising and not offering the right sizes. The company adjusted its plan for July 4 and is making further adjustments for Labor Day to improve performance.

Q:What is the medium-term outlook for the company's financial performance?

A:Linda J. Rendle stated that the company aims to return to 3%-5% growth over the medium term, driven by category growth, international and professional business performance, and share growth. The company is confident in its capabilities and plans to reinvigorate category growth and improve margins.

Q:Why was price/mix negative in Q4, and what is the outlook for fiscal year '26?

A:Luc Bellet explained that price/mix was negative 4% in Q4 due to onetime trade spending adjustments and lapping significant merchandising events. For fiscal year '26, price/mix is expected to be about negative 1% or slightly better.

Q:What is the expected impact of the Glad JV buyout on gross margin?

A:Luc Bellet stated that the buyout of P&G's 20% interest in the Glad JV will result in a gross margin benefit of about 50 basis points annually, with a 20-25 basis point impact in fiscal year '26.

Q:What are the risks and benefits of the ERP transition?

A:Linda J. Rendle stated that the ERP transition does not pose structural risks like retailer inventory reductions but offers benefits such as better inventory management, trade spend optimization, and cost efficiency. The transition is expected to unlock new value streams and improve operational agility.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer to the question about the potential structural risks of the ERP transition leading to leaner trade inventory levels at retailers. Linda J. Rendle stated that there is no structural reason for such a change but did not provide detailed evidence or data to support this claim.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary indicates a mixed outlook. Financial performance is expected to improve in the back half of the year, driven by innovations and demand plans, but current trends show muted growth and competitive pressures. Margins are under pressure from costs and ERP disruptions, yet improvements are anticipated. Market strategy focuses on innovation and portfolio management. The Q&A reveals cautious optimism with some concerns about competition and execution. Without a market cap, the overall sentiment is neutral, reflecting balanced positives and negatives.

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