How Barbecue Charcoal Reveals the Truth About the U.S. Economy
By Mitchell Clark for Daily Gains Letter |
In a rare miss for a consumer products business, The Clorox Company (NYSE/CLX) disappointed the stock market by reporting very flat first-quarter numbers.
It’s more evidence that real economic growth continues to be elusive.
The Clorox Company is a really good business.
It’s way more than “Clorox Bleach:” it’s also “Pine-Sol,” “Liquid-Plumr,” “S.O.S.,” “Glad,” “Burt’s Bees,” “Brita,” and “Kingsford,” to name a few.
According to the company, it could only generate a one-percent gain in sales, to $1.41 billion.
Diluted earnings per share from continuing operations fell two percent from the comparable quarter.
The company’s domestic U.S. business was stronger than international operations. One sore spot for the company was its “Kingsford” charcoal brand, because of the weather; a stronger winter kept charcoal consumers indoors.
There’s also been a strong movement towards more environmentally friendly cleaning products. Plenty of consumer product brands purport to be “green,” and they line the store shelves at many retailers.
Noticeable in the company’s earnings report was a significant increase in cash and equivalents. This is a trend that is prevalent throughout the entire stock market.
Clorox’s 10-year stock chart is below:
Chart courtesy of www.StockCharts.com
The company’s long-term stock market performance has been excellent.
Clorox announced third-quarter earnings of $134 million, or $1.00 diluted earnings per share. This compares with $134 million, or $1.02 diluted earnings per share, in the same quarter last year.
Like many consumer goods companies, Clorox recently soared on the stock market. While it should be considered fully valued considering its flat earnings, Clorox is still offering a three-percent dividend yield. This is what has kept institutional investors in the stock.
Realistically, it is unreasonable to expect a company like Clorox to appreciate on the stock market.
While Clorox could certainly be considered a safe business to be in and a three-percent dividend yield is attractive, the lack of growth in earnings and revenues does not justify a continuing rising share price.
I’ve always been a big fan of consumer goods companies. They have proven to be excellent stock market holdings that pay dividends and create a lot of wealth for investors.
Clorox could not better illustrate why the stock market needs to experience a meaningful correction immediately.
While broader stock market valuations can still be viewed as historically reasonable, the earnings and revenues results that have been produced this first quarter do not support a rising stock market.
Cash is everywhere right now: corporations have it, institutional investors have it, and even individual investors have cash that is toying with this market.
There is some evidence of economic recovery in the U.S. economy. But frankly, the stock market is way ahead of it.
Tags: corporations, dividend yield, dividends, earnings, economic growth, economic recovery, institutional investors, stock market, U.S. economy