The pandemic has created a new corporate hierarchy of winners and losers.
We all know who the losers are. Any company in the travel and hospitality sector falls into that category. So do oil companies, real estate investment trusts and car manufacturers.
The winners are fulfilment companies like Amazon.com Inc., big box retailers such as Walmart Inc. and Costco Wholesale Corp., and any company that offers face-to-face online communication.
There’s also another category that some people tend to overlook. They are the companies that make products that everyone is desperately trying to buy these days – cleaners and sanitizers.
Have you tried to buy a container of disinfectant spray lately? Or a pack of sanitizing wipes? Forget it. Amazon has a notice on its website saying they’re all reserved for front-line workers. The suppliers can’t keep up with the demand.
One of the firms in this sweet spot is Clorox Co. (CLX-N), which recently reported its biggest sales increase in nearly a decade.
In addition to bleach, which was the company’s only product when it was launched back in 1913, Clorox now produces a wide range of disinfectants for both home and institutional use. They include disinfectant wipes, Spore Healthcare Defense Cleaner Disinfectant, Citrace Hospital Disinfectant & Deodorizer, and many more.
The company experienced an unprecedented 500-per-cent surge in demand for its key cleaning products after the virus hit. Despite moving to a 24/7 production schedule and sourcing more supply from third parties, it still couldn’t keep up.
“We acknowledge our products aren’t consistently in stock, and there’s more to do,” said chief executive Benno Dorer. “We put Clorox disinfecting wipes on store shelves every day and find that people scoop them up almost as soon as they’re delivered. But we are partnering with our retailers to serve consumers’ needs as best we can and expect continued meaningful movement in our ability to meet demand this summer. We are also making considerable investments to increase capacity for the mid-term, applying what we’ve learned from this crisis to be prepared for a surge in demand in the future.”
Clorox produces more than disinfectants. The briquettes you use on your barbeque may be from them (Kingsford). Your kitchen garbage bag may be one of their products (Glad). The product you pour in the sink to clean the drain may be theirs (Liquid-Plumr). Clorox also makes Pine-Sol, Hidden Valley Ranch salad dressings, Calm (a dietary supplement), Fresh Step cat litter, and more.
As you might expect, given the spike in demand for its products, Clorox is doing very well from a financial perspective. Third-quarter 2020 earnings released last month, showed sales growth of 15 per cent and a 31-per-cent increase in earnings per share.
The company reported net sales of almost US$1.8-billion for the three months to March 31, up from just under US$1.6-billion in the year-before period. Net earnings were US$241-million ($1.89 a share, fully diluted) compared with US$187-million (US$1.44) in the third quarter of fiscal 2019.
Year-to-date net cash provided by operations was US$806-million compared with US$603-million in the year-ago period, for an increase of 34 per cent.
The company increased its earnings forecast for the current fiscal year to US$6.70 to US$6.90 a diluted share.
Shortly after the results came out, Clorox announced a 5-per-cent increase in its quarterly dividend, to US$1.11 per share (US$4.44 annually). At Friday’s closing price of US$197.57, the shares yield 2.25 per cent at the new rate.
The main negative is that Clorox stock is not cheap. The shares are up by 28.7 per cent so far this year, from a close of US$153.54 on Dec. 31. At the current price, the trailing price-to-earnings ratio is 28.99 – not outrageous for a company whose earnings appear poised to grow, but not cheap either.
While I do not own the stock (wish I did), I recommend Clorox for current and long-term growth, and you also collect a reasonable dividend. However, given the high price you may wish to buy in tranches – perhaps one-third of your position now and the rest on dips below US$190.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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