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Despite its attempts to increase its global sales, the company operates mainly in North America and derived 84 percent of its $4.6 billion 2006 revenues from this geographical segment. The North American Household and Personal care market is saturated and growing slower than international markets; Clorox's overdependence on the North America market will force the company to endure fierce competition.
The company holds only 4% market share in the United States Household and Personal Products (HPP) industry, a slim slice compared to giants Procter & Gamble's 58%, Colgate-Palmolive's 14% and Kimberly-Clark's 10%. Unlike these competitors, Colorx has struggled with expanding its gross margins--in fact; margins have decreased 4% since 2003.
Clorox is very sensitive to increasing commodity costs, with rising PET resin costs accounting for 10 percent of Clorox's cost of goods sold. Energy costs and raw materials like chlor-alkali and liner-board contribute another 12% to the total cost of goods sold. Due to pricing constraints from consolidating retailers and reduced power to negotiate for lower prices, it has been difficult for the company to offset this rise in expenditures.
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[edit] Corporate Overview
The Clorox Company was founded in 1913 by five entrepreneurs: Edward Hughes, a purveyor of wood, coal, grain and hay; Charles Husband, a bookkeeper at a paper-bag factory; William Hussey, a miner; Rufus Myers, a lawyer; and Archibald Taft, president of the local Harbor Bank. The company has come a long way since its initial product Clorox Bleach debuted, expanding to manufacture other laundry additives, cleaning items, water-filtration systems and food products through both organic growth and acquisitions. Today, Clorox's products are sold in over 100 countries under three business segments:
[edit] Household and Personal Products (HPP)
The Household group accounted for 45% of its total revenue. This segment generated $ 2.1 billion and had a net sales growth of 5% in 2006. Offerings include laundry products, home-care cleaning products, water-filtration systems, professional and auto-care products sold in the US, as well as all products sold in Canada.
- Laundry products such as liquid bleaches, laundry stain removers, and both dry and liquid color-safe bleaches are sold under the Clorox and Clorox 2 brands.
- Home-care cleaning products such as disinfecting and sanitizing sprays, wipes, toilet-bowl cleaners, dilutable and spray glass surface cleaners, carpet cleaners, reusable cleaning cloths, drain openers, steel-wool soap pads, scrubber sponges, mildew removers, soap-scum removers, bathroom cleaners, floor mopping systems, toilet cleaning tools, daily shower cleaners and pre-moistened towelettes are primarily sold under the Clorox, Formula 409, Liquid-Plummer, Pine-Sol, Tilex and S.O.S brands. Additionally, the company has made several acquisitions, such as Burt's Bees, in order to stay amid shifting consumer preferences.[1]
- Water filtration systems are sold under the Brita brand.
- Auto-care products such as protectants, cleaners and wipes, tire- and wheel-care products, washes, waxes and automotive fuel and oil additives, are sold under the Armor All and STP brands.
- Professional products are sold to the institutional, janitorial, healthcare and food-service markets under some of the same brands listed above.
[edit] Specialty Group
The Specialty segment accounted for roughly 41% of total revenue and includes the plastic bags, wraps, and containers businesses, as well as the US charcoal and cat litter business. Brands include Glad, Step, Scoop Away, Kingsford and Match Light.
- The segment also includes food products, such as salad dressings and dip mixes, seasoned mini-croutons, seasonings, sauces, and marinades, sold in the US under the Hidden Valley and KC Masterpiece brands.
- The Specialty group has been growing faster than other categories, with a 6% increase in 2006 sales (driven by record sales of Fresh Step cat litter and Hidden Valley salad dressing, as well as by improved pricing.) However, the bag category has had below-par margins and is sensitive to rising resin costs.
[edit] International
The International segment accounted for 14% of total revenue and includes all products sold outside of the US and Canada. International sales generated 0.6 billion in net sales, an increase of 9% in 2006 due to acquisitions from the Latin America bleach market.
- A wide range of products from the two North America segments and a few additional items such as brooms, candles, air fresheners, fabric refreshers and insecticides are offered under various brands internationally.
[edit] Trends and Forces
[edit] Dependence on saturated North America
With international sales accounting for only 14% of total revenues, Clorox is overexposed to the North American market. This limited international exposure is a source of concern for the company in the long run, since spending on Household and Personal Products (HPP) is growing slowly at best in North America. The North American HPP market grew by only about 2 percent annually between 2000 and 2005; whereas the HPP market in Latin America, Eastern Europe and Greater China each grew by approximately 11%, 12% and 7%percent over the same period of time. Because the North American market is much more saturated than the other markets, Clorox is likely to face greater competition than it would, had it operated in a different geographical region.
[edit] Sensitivity to commodities prices
In recent years, rising oil and plastic resin prices have affected manufacturers across the spectrum. Clorox is no exception, since it uses plastic resins in a variety of products, especially in its trash bags. In fact, 2006's plastic resin costs represented almost 10 percent of Clorox's cost of goods sold. Clorox also depends on a number of agricultural commodities (example: soybean oil for salad dressing and corn starch for charcoal briquettes) whose rising prices may also pressure margins. Other energy sources and raw materials such as chlor-alkali and liner-board contribute another 12% to cost of goods sold. Any increase in the prices of these materials will hurt Clorox's margins.
While the prices of these raw materials have come down from their record highs, observers believe that these reductions are unlikely to help Clorox significantly. This is because other manufacturers will also be able to tap into these lower prices, resulting in a price- and retailer-recruitment war and.
[edit] Supermarket consolidation risk
Retail consolidation activity has a high impact on product pricing. In 2006, Clorox’s top five largest customers accounted for 41% of its revenue. Wal-Mart Stores (WMT) is particularly significant to Clorox--26% of the company's sales came from the single retailer. As supermarkets consolidate, a smaller number of firms account for larger percents of Clorox’s total sales, making each of them more important to Clorox’s bottom line. This gives retailers the power to negotiate for lower prices, which can put pressure on the already hurting profit margins of manufacturers like Clorox. Additionally, Wal-mart and other retail chains have begun placing a larger emphasis on private label brands, which can compete with Clorox’s products and force the company to lower prices to remain competitive.
[edit] The Rising Value of the Dollar Could Impact Clorox' Revenues
Changes in the strength of the dollar compared to foreign currency could impact the company by increasing both costs and revenue in dollars. Profit would rise if the increase in revenue was greater than the increase in cost. As the strength of the dollar increases, all sales made in foreign currency end up being worth less because the amount of US dollars the company gets per sale decreases. On the other hand the cost of foreign inputs (commodities that go into Clorox products) sold in foreign currencies would decrease with the strengthening dollar. Over 14% of Clorox's sales are in international markets, so the increasing value of the dollar could be a significant factor driving revenues down overseas. Specifically the company primarily deals with the British Pound, Euro, Australian dollar, Canadian dollar, and the New Zealand dollar. Between July and December 2008, the dollar regained nearly all its losses again foreign currencies.[2] Because the company has both assets and liabilities in foreign countries, it has to deal with additional revenues and expenses in foreign currencies.[1]
[edit] Key Internal Issues
[edit] Reduced "gamechanger" output
Gamechangers is what is referred to the company’s innovations, in which Clorox depends on to drive further growth. In the past, Clorox has created or reinvented several products that saw great success (example: Glad ForceFlex), as well as others that didn't perform up so well (Clorox Bath Wand). Also, products such as Ready Mop, Toilet Wand, and Press N’ Seal’s successors in their respective category (gamechangers) saw a decline in sales shortly a year after their début. The recent high costs of raw materials have limited Clorox's ability to continue reinvestment in potential products in the event current products fail to generate returns. Thus, the company's success in respect to its innovations has been dependent upon its ability to anticipate and execute effective launch and leverage strategies.
[edit] Competition
Clorox is a relatively small firm, compared to its giant competitors Colgate-Palmolive Company (CL), Procter & Gamble Company (PG), and Kimberly-Clark (KMB). Competition in the Household and Personal Products is exceptionally stiff. Yet Clorox maintains its domination of the bleach category with more than 50% U.S market share under its highly recognized Clorox Brand. Clorox also has the leading market share in categories such as bags, charcoal, cleaner, and water filtration.
The household and personal product market is growing much faster in emerging markets outside of North America. Most of Clorox's competitors have penetrated the global market, gaining a valuable head start in capturing global market shares. With little presence in the global market, Clorox is the least exposed of the big industry players to high-growth emerging markets.
Clorox has faced many challenges in the past several years. Unlike its primary big-business competitors, the firm has failed to expand gross margins since 2003, instead watching them decline 46.3% to 42.3%. The company has also seen an increase in the costs of its most widely used commodities. Due to extreme competition from private brands that offer products at lower prices and decreased price-negotiation power with core retailers, Clorox was constrained in its attempts to offset the costs.
Clorox competes with many small private brands. Clorox's closes private-brand competitors have a close #2 position in trash bags and other categories. But because private labels don't put as strong an emphasis on innovation and new product creation, they are far less burdened by the costs of new product development (and when a new product does make it big, these private companies can ride along on Clorox's coattails to produce knockoffs that cleverly sidestep the patents). Private companies also get an added advantage in the event of a commodities costs decrease: while large firms like Clorox must stick to hedge-like long term purchasing contracts, private labels can usually purchase at the current market price, reaping the benefits of a temporary downswing in raw materials costs.
Clorox also competes with Kraft Foods (KFT), Unilever NV (UN), and Reckitt Benckiser across a number of specialty group business segments, including trash bags, salad dressing, charcoal, and STP autocare products.
| Company | Revenue (mm) | Operating Income (mm) | Operating Margin | Gross Margins | R&D Spending (mm) | R&D as % of Total Revenue | Revenue Growth from 2005 | Major Brands/Products |
|---|---|---|---|---|---|---|---|---|
| Clorox | $4,644 | $653 | 14.1% | 42.2% | $99 | 2.1% | 5.8% | Clorox Laundry Bleach, Pine-Sol Cleaner, Glad Plastic Bags, Brita Water Filters |
| Procter & Gamble Company (PG) | $68,222 | $13,249 | 19.4% | 51.4% | $2,075 | 3.0% | 20.2% | Pantene, Crest, Tide, Downy, Bounty, Folgers, Gillette |
| Kimberly-Clark | $16,747 | $2,101 | 12.5% | 30.3% | $301 | 1.8% | 5.3% | Huggies Diapers, Kleenex Tissue, Scott Paper Towels |
| Colgate-Palmolive | $12,238 | $2,160 | 17.6% | 54.8% | $242 | 2.0% | 7.4% | Colgate Toothpaste, Colgate Toothbrushes, Irish Spring Soap, Palmolive Soap, SpeedStick Deodorant |
Clorox Company
[edit] References
- ↑ 1.0 1.1 Cheap Stocks: The Clorox Company.
- ↑
- ↑ 3.0 3.1 CHD,2007,10-K,Item-6,Page-20
- ↑ 4.0 4.1 CHD,2007,10-K,Item-15,Page-80
- ↑ 5.0 5.1 CLX,2007,10-K,Item-8,Page-21
- ↑ CLX,2007,10-K,Item-1,Page-4
- ↑ 7.0 7.1 SCL,2007,10-K,Item-6,Page-21
- ↑ SCL,2007,10-K,Item-15,Page-90
- ↑ SCL,2007,10-K,Item-7,Page-27
- ↑ 10.0 10.1 ZEP,2007,10-K,Item-6,Page-19
- ↑ ZEP,2007,10-K,Item-1,Page-1