CLX's Productivity Drive: Likely to Aid Margins & Offset High Costs?

The Clorox Company’s CLX productivity mechanism plays a pivotal role in its strategic execution and operational excellence. The company advances its productivity agenda by leveraging digital tools, empowering the workforce and optimizing business functions.

CLX’s streamlined operating model is focused on simplifying operations, enhancing technology and delivering agile growth. The company aims to drive higher productivity across the organization through its transformation efforts, including its enterprise resource planning (ERP) conversion. Clorox has expanded its historical cost savings, enhancing its ability to drive value creation. The ERP transition is a critical step in the company’s digital transformation, enabling quick, data-driven decisions and boosting capabilities to fuel growth and productivity. 

In its third-quarter fiscal 2025 earnings call, management cited that fiscal 2025 adjusted EPS excludes an estimated 70 cents related to the long-term investment in digital capabilities and productivity enhancements, as well as gains from cyberattack insurance recovery. Selling and administrative expenses had been predicted between 15% and 16% of net sales, indicating a 150-bps impact of strategic investments in digital capabilities and productivity. 

Amid an uncertain and volatile operating backdrop, productivity improvements, holistic margin-management efforts and innovation help the company expand margins and earnings. In third-quarter fiscal 2025, the gross margin expanded 240 bps year over year, marking CLX’s 10th consecutive quarter of expansion. This growth was driven by substantial cost savings and gains from certain divestitures. For fiscal 2025, the gross margin is likely to increase 150 bps, partly offsetting cost inflation, increased trade promotional expenses and higher costs from tariffs. Our model expects a rise of 150 bps in gross margin and 300 bps in adjusted operating margin for fiscal 2025.

Clorox has been making constant efforts to drive efficiency across manufacturing and logistics, as well as optimizing portfolio moves. Its IGNITE strategy is also progressing well. In a nutshell, CLX’s productivity initiatives extend beyond cost-cutting, focusing on operational excellence, innovation, sustainable value creation and overall growth.

CLX’s Competition in Productivity Enhancements

Colgate-Palmolive Company CL, The Procter & Gamble Company PG and Newell Brands Inc. NWL are the major companies that are making productivity efforts.

Colgate plays a meaningful role in consumers’ daily routines. Boasting a leadership position in oral and personal care, CL continues to focus on robust pricing and other productivity initiatives, including its funding-the-growth program. The company leverages its healthy balance sheet, including minimal net debt levels, to boost cash flow generation, supporting business growth and productivity gains. Similar to CLX, Colgate looks to navigate raw material inflation through key strategic methods, including productivity improvements and bolstering supply-chain efficiencies. 

Procter & Gamble, like its peers, places a strong emphasis on driving productivity. The company is advancing productivity investments to counter inflationary costs and currency volatility, reinforcing its commitment to sustained margin expansion. PG continues to accelerate productivity across all facets of operations to reinvest strategically and fuel enterprise-wide growth. Procter & Gamble seeks to gain greater visibility into cost-saving opportunities by leveraging globally scalable programs like Supply Chain 3.0, which focuses on optimizing supply-chain operations. Supply Chain 3.0 is helping the company to efficiently deliver products to the retail partners, with the integration of automation, data synchronization and digitization.

Newell is benefiting from productivity and pricing actions, which have been boosting margins. In first-quarter 2025, the gross margin expanded 150 bps, reflecting the seventh straight quarter of year-over-year increase. The company has implemented a corporate strategy that prioritizes investments in innovation, brand-building and go-to-market excellence across its brands and markets. The company is strengthening its commercial capabilities and improving organizational efficiency. Key pricing and productivity actions have mitigated inflation and currency translation impacts, contributing to core sales performance.

CLX’s Price Performance, Valuation and Estimates

Clorox’s shares have lost around 23% year to date compared with the industry’s 0.7% dip.

From a valuation standpoint, CLX trades at a forward price-to-earnings ratio of 18.31X compared with the industry’s average of 20.46X.

The Zacks Consensus Estimate for CLX’s EPS for fiscal 2025 indicates year-over-year growth of 14.9% while the same for fiscal 2026 implies a decline of 5.4%, respectively. The company’s EPS estimate for fiscal 2025 and fiscal 2026 has moved southward in the past 30 days.

Clorox carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research