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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☑ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| for the fiscal year ended | June 30, 2019 | |
| OR | ||
| ☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
| for the transition period from__________to__________. | ||
| Commission file number: | 1-07151 |
THE CLOROX COMPANY
(Exact name of registrant as specified in its charter)
| Delaware | 31-0595760 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification Number) |
1221 Broadway**,** Oakland**,** California 94612-1888
| (Address of principal executive offices) (ZIP code) | |||||
| (510) | 271-7000 | ||||
| (Registrant’s telephone number, including area code) | |||||
| Securities registered pursuant to Section 12(b) of the Act: | |||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||
| Common Stock–$1.00 par value | CLX | New York Stock Exchange | |||
| Securities registered pursuant to Section 12(g) of the Act: | |||||
| None | |||||
| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer (Do not check if a smaller reporting company) | ☐ | Smaller reporting company | ☐ | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the registrant’s common stock held by non-affiliates as of December 31, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $19.7 billion.
As of July 26, 2019, there were 125,742,476 shares of the registrant’s common stock outstanding.
Documents Incorporated by Reference:
Portions of the registrant’s definitive proxy statement for the 2019 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days after June 30, 2019, are incorporated by reference into Part III, Items 10 through 14 of this Annual Report on Form 10-K.
THE CLOROX COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2019
TABLE OF CONTENTS
PART I
This Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (this Report), including the exhibits hereto and the information incorporated by reference herein, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and such forward-looking statements involve risks and uncertainties. Except for historical information, statements about future volumes, sales, organic sales growth, foreign currencies, costs, cost savings, margin, earnings, earnings per share, diluted earnings per share, foreign currency exchange rates, tax rates, cash flows, plans, objectives, expectations, growth or profitability are forward-looking statements based on management’s estimates, beliefs, assumptions and projections. Words such as “could,” “may,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “predicts” and variations on such words, and similar expressions that reflect our current views with respect to future events and operational and financial performance, are intended to identify such forward-looking statements. These forward-looking statements are only predictions, subject to risks and uncertainties, and actual results could differ materially from those discussed below. Important factors that could affect performance and cause results to differ materially from management’s expectations are described in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report, as updated from time to time in the Company’s U.S. Securities and Exchange Commission (SEC) filings.
The Company’s forward-looking statements in this Report are based on management’s current views, beliefs, assumptions and expectations regarding future events and speak only as of the date when made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by the federal securities laws.
In this Report, unless the context requires otherwise, the terms “the Company,” “Clorox,” “we,” “us” and “our” refer to The Clorox Company and its subsidiaries.
ITEM 1. BUSINESS
Overview of Business
The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with fiscal year 2019 net sales of $6.2 billion and approximately 8,800 employees worldwide as of June 30, 2019. Clorox sells its products primarily through mass retailers, grocery outlets, warehouse clubs, dollar stores, home hardware centers, drug, pet and military stores, third-party and owned e-commerce channels, and distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Fresh Step® cat litter; Glad® bags, wraps and containers; Kingsford® charcoal; Hidden Valley® dressings; Brita® water-filtration products; Burt’s Bees® natural personal care products; RenewLife® digestive health products; and Rainbow Light®, Natural Vitality™ and NeoCell® dietary supplements. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and Clorox Healthcare® brand names. Nearly 80% of the Company’s sales is generated from brands that hold the No. 1 or No. 2 market share positions in their categories. The Company was founded in Oakland, California, in 1913 and is incorporated in Delaware.
Since October 2013, the Company’s 2020 strategy has directed the Company to focus on the highest-value opportunities for profitable, sustainable and responsible growth, or Good Growth. The Company’s long-term financial goals included annual net sales growth of 3%-5%, annual earnings from continuing operations before interest and taxes (EBIT) margin expansion of 25-50 basis points and annual free cash flow of 11%-13% of net sales.
In April 2018, the Company acquired 100 percent of Nutranext, a dietary supplements company based in Sunrise, Florida, for $681 million. Results for Nutranext’s global business are reflected in the Lifestyle reportable segment. The purchase of Nutranext reflects the Company’s strategy to acquire leading brands in economically attractive categories.
In fiscal year 2019, the Company delivered net sales growth of 1% as well as a 1% increase in diluted earnings per share (EPS) from continuing operations in a macroeconomic environment that included high levels of competition in select categories, increasingly competitive retail dynamics, significantly rising logistics and commodity costs and global inflationary pressures, as well as a difficult macroeconomic environment in international markets.
The Company continued to focus on driving profitable sales growth in its United States (U.S.) business, leveraging strong demand building investments, including product innovation to support category growth and market share. The Company launched new products in many categories in fiscal year 2019, including the Brita® Premium Filtering Water Bottle, Burt’s Bees® lip oils, Burt’s Bees® liquid lipsticks, Clorox® Ultra Clean disinfecting wipes, Clorox Scentiva™ disinfecting mopping cloths, Clorox Healthcare® VersaSure™ cleaner disinfectant wipes, Clorox® disinfecting bio stain & odor remover; Clorox® Ropa Quitamanchas Blanco Supremo; Fresh Step® Clean Paws® cat litter in new unscented and Mediterranean Lavender scent; Glad® 4-gallon bags in Beachside Breeze and Sweet Citron and Lime scents; Hidden Valley® Ranch ready-to-eat dips; Kingsford® 100% natural hardwood briquets; NeoCell® collagen protein peptides: unflavored, pomegranate açai and mandarin orange flavors; NeoCell® Gummy Glow; and Rainbow Light® prenatal Precious Gems™ gummies.
In international markets, the Company remained focused on execution of its Go Lean Strategy, which emphasizes driving the long-term profitability of its international business. The Company’s international business continues to play an important strategic role, with No. 1 and No. 2 brands in the majority of categories and countries where it operates.
In May 2019, the Company announced an increase of 10% in its quarterly dividend. In fiscal year 2019, the Company paid $490 million in dividends to stockholders.
Following the May 2018 board of directors’ authorization of a stock repurchase program of up to $2 billion, the Company repurchased 2.3 million shares of its common stock for $328 million under this open-market purchase program in fiscal year 2019.
Finally, in fiscal year 2019, the Company remained committed to corporate responsibility by maintaining strong and transparent environmental, social and governance practices. As part of its 2020 sustainability goals, the Company continued to work to reduce water and energy use, solid waste to landfill and greenhouse gas emissions as well as improve the sustainability of its product portfolio. The Company surpassed nearly all its public goals two years early, and all other areas remained on track. The Company’s achievements were acknowledged through multiple external recognitions, including a No. 7 ranking on Barron’s Most Sustainable Companies list, No. 25 on Forbes and Just Capital’s The Just 100 ranking of America’s best corporate citizens, and No. 87 ranking on the annual list of top corporate citizens by Corporate Responsibility magazine. The Company also earned the top rating of 100 percent on the Human Rights Campaign’s Corporate Equality Index for the 13th consecutive year, and was listed on the Bloomberg Gender Equality Index among leading companies helping to advance gender equality around the world. In fiscal year 2019, The Clorox Company Foundation, The Burt’s Bees Greater Good Foundation and The Clorox Company together awarded approximately $5 million in cash grants, and the Company donated products with a fair market value of approximately $6 million, which included providing support following hurricanes Florence and Michael as well as the Midwest U.S. flooding. Additionally, the Company contributed approximately $1 million to deserving nonprofits and research foundations through cause marketing programs benefiting social and other charitable causes.
In fiscal year 2020, the Company anticipates ongoing challenges that may impact its sales and margins, including continued high levels of competition in select categories, a more competitive retail environment, rising logistics costs, changes in foreign currency exchange rates, and the continuation of a difficult macroeconomic environment in many international markets.
For additional information on recent business developments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Exhibit 99.1, incorporated herein by reference.
Financial Information About Operating Segments and Principal Products
The Company operates through strategic business units (SBUs) that are aggregated into four reportable segments: Cleaning, Household, Lifestyle and International. The four reportable segments consist of the following:
| • | Cleaning consists of laundry, home care and professional products marketed and sold in the United States. Products within this segment include laundry additives, such as bleach products under the Clorox® brand and Clorox 2® stain fighter and color booster; home care products, primarily under the Clorox®, Formula 409®, Liquid-Plumr®, Pine-Sol®, S.O.S® and Tilex® brands; naturally derived products under the Green Works® brand; and professional cleaning, disinfecting, and food service products under the CloroxPro™, Dispatch®, Clorox Healthcare®, Hidden Valley® and KC Masterpiece® brands. |
| • | Household consists of charcoal; bags, wraps and containers; cat litter; and digestive health products marketed and sold in the United States. Products within this segment include charcoal products under the Kingsford® and Match Light® brands; bags, wraps and containers under the Glad® brand; cat litter products under the Fresh Step®, Scoop Away® and Ever Clean® brands; and digestive health products under the RenewLife® brand. |
| • | Lifestyle consists of food products, water-filtration systems and filters, natural personal care products, and dietary supplements mainly marketed and sold in the United States. Products within this segment include dressings and sauces, primarily under the Hidden Valley®, KC Masterpiece®, Kingsford® and Soy Vay® brands; water-filtration systems and filters under the Brita® brand; natural personal care products under the Burt’s Bees® brand; and dietary supplements under the Rainbow Light®, Natural Vitality™ and NeoCell® brands. |
| • | International consists of products sold outside the United States. Products within this segment include laundry; home care; water-filtration systems and filters; digestive health products; charcoal; cat litter products; food products; bags, wraps and containers; natural personal care products; and professional cleaning and disinfecting products primarily under the Clorox®, Glad®, PinoLuz®, Ayudin®, Limpido®, Clorinda®, Poett®, Mistolin®, Lestoil®, Bon Bril®, Brita®, Green Works®, Pine-Sol®, Agua Jane®, Chux®, RenewLife®, Kingsford®, Fresh Step®, Scoop Away®, Ever Clean®, KC Masterpiece®, Hidden Valley®, Burt’s Bees®, CloroxPro™ and Clorox Healthcare® brands. |
The Company’s products are marketed and sold globally. The following table provides the Company’s global product lines, which were sold in the U.S. (including Professional products SBU) and International, that accounted for 10% or more of consolidated net sales for the fiscal years ended June 30:
| 2019 | 2018 | 2017 | ||||||
| Home Care products | 26 | % | 26 | % | 25 | % | ||
| Bags, wraps and containers | 16 | % | 18 | % | 18 | % | ||
| Laundry additives | 14 | % | 15 | % | 15 | % | ||
| Food products | 10 | % | 10 | % | 10 | % | ||
| Charcoal products | 9 | % | 10 | % | 11 | % |
Principal Markets and Methods of Distribution
In the U.S., most of the Company’s products are nationally advertised and sold to mass retailers, grocery outlets, warehouse clubs, dollar stores, home hardware centers, military stores and other retail outlets primarily through a direct sales force, and to grocery stores and grocery wholesalers primarily through a combination of direct sales teams and a network of brokers. Some brands are sold using the direct-to-consumer model. The Company sells institutional, janitorial, food-service, and healthcare products through a direct sales force and a network of brokers to distributors and redistributors. Outside the U.S., the Company sells products to the retail trade through subsidiaries, licensees, distributors and joint-venture arrangements with local partners. In the U.S. and in the international markets, the Company also sells many of its products through e-commerce.
Sources and Availability of Raw Materials
The Company purchases raw materials from numerous unaffiliated U.S. and international suppliers, some of which are sole-source or single-source suppliers. Interruptions in the delivery of these materials could adversely impact the Company. Key raw materials used by the Company include resin, diesel, sodium hypochlorite, corrugated cardboard, soybean oil, jet fuel and other agricultural commodities. Sufficient raw materials were available during fiscal year 2019. Costs for resin and other commodity costs increased in fiscal year 2019, amid volatility and inflation in some key geographic and commodity markets. The Company expects commodity increases to continue in fiscal year 2020. The Company generally utilizes supply contracts to help ensure availability and a number of forward-purchase contracts to help reduce the volatility of the pricing of raw materials needed in its operations. However, the Company is highly exposed to changes in the prices of commodities used as raw materials in the manufacturing of its products. For further information regarding the impact of changes in commodity prices, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.1 and “Risk Factors – Volatility and increases in the costs of raw materials, energy, transportation, labor and other necessary supplies or services have negatively impacted, and continue to negatively impact, the Company’s net earnings and cash flow” in Item 1.A.
Patents and Trademarks
Most of the Company’s brand name consumer products are protected by registered trademarks. The Company’s brand names and trademarks are highly important to its business, and the Company vigorously protects its trademarks from apparent infringements. Maintenance of brand equity value is critical to the Company’s success. The Company’s patent rights are also material to its business and are asserted, where appropriate, against apparent infringements.
Seasonality
Most sales of the Company’s charcoal products occur during the months of March through September each calendar year. The volume and sales of charcoal products may be affected by weather conditions.
Customers
Net sales to the Company’s largest customer, Walmart Stores, Inc. and its affiliates, were 25%, 26% and 26% of consolidated net sales for the fiscal years ended June 30, 2019, 2018 and 2017, respectively, and occurred across all of the Company’s reportable segments. No other individual customer accounted for 10% or more of the Company’s consolidated net sales in any of these fiscal years. The Company’s five largest customers accounted for nearly half of the Company’s consolidated net sales for each of the fiscal years 2019, 2018 and 2017.
Competition
The markets for consumer products are highly competitive. The Company’s products compete with other nationally advertised brands and with “private label” brands within each category. Competition comes from similar and alternative products, some of which are produced and marketed by major multinational or national companies having financial resources greater than those of the Company. In addition, the Company faces competition from retailers, including club stores, grocery stores, drugstores, dollar stores, mass merchandisers, e-commerce retailers and subscription services. The Company’s products generally compete on the basis of product performance, brand recognition, image and price. A newly introduced consumer product (whether improved or newly developed) usually encounters intense competition requiring substantial expenditures for advertising, sales promotion and trade merchandising support. If a product gains consumer acceptance, it typically requires continued advertising and promotional support and ongoing product innovation to maintain its relative market position. For further information regarding the intense competition the Company faces, see “Risk Factors – The Company faces intense competition in its markets, which could lead to reduced net sales, net earnings and cash flow” in Item 1.A.
Research and Development
The Company conducts research and development primarily at its facility located in Pleasanton, CA, which the Company has leased since 2011. The Pleasanton facility consists of approximately 357,000 square feet of leased space, utilizing advanced labs and open work spaces to encourage creativity, collaboration and innovation. In addition to the leased facility in Pleasanton, CA, the Company conducts research and development activities in Buenos Aires, Argentina; Santa Cruz, CA; Willowbrook, IL; Durham, NC; and Cincinnati, OH.
The Company devotes significant resources and attention to product development, process technology and consumer insight research to develop commercially viable consumer-preferred products with innovative and distinctive features. In addition, the Company obtains technologies from third parties for use in its products. Royalties relating to such technologies are reflected in the Company’s Cost of products sold. For further information regarding the Company’s research and development costs, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.1.
Environmental Matters
For information regarding noncapital expenditures related to environmental matters, see the discussions below under “Risk Factors – Environmental matters create potential liabilities that could adversely affect the Company’s financial condition and results of operations” in Item 1.A. No material capital expenditures relating to environmental compliance are presently anticipated.
Number of Persons Employed
As of June 30, 2019, the Company employed approximately 8,800 people.
Available Information
The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act are available on the Company’s website, free of charge, as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. These reports are available at TheCloroxCompany.com under Investors/Financial Information/SEC Filings. Information relating to corporate governance at Clorox, including the Company’s Code of Conduct, the Clorox Company Board of Directors Governance Guidelines and Board Committee charters for the Management Development and Compensation Committee, the Audit Committee, and the Nominating, Governance and Corporate Responsibility Committee, is available at TheCloroxCompany.com under Who We Are/Corporate Governance or https://www.thecloroxcompany.com/who-we-are/corporate-governance/. The Company will provide any of the foregoing information without charge upon written request to Corporate Communications, The Clorox Company, 1221 Broadway, Oakland, CA 94612-1888. The information contained on the Company’s website is not included as a part of, or incorporated by reference into, this Report.