Clorox moves on after sting of Burt's Bees charge

CHICAGO (Reuters) - Clorox Co (CLX.N) is upbeat about the second half of the year as it expects new products, price increases and the appetite of affluent shoppers to help it rebound after a disappointing first half.

Clorox posted a sharply lower quarterly profit on Friday as sales fell, it spent more to promote its goods and it took a hefty impairment charge on its Burt's Bees personal care business.

The maker of Clorox bleach and Glad bags also lowered its fiscal year profit forecast for the second time in three months, though it kept a January sales forecast intact.

Shares were up almost 3 percent after falling 1.1 percent earlier.

Analysts had anticipated that Clorox would bring down its fiscal 2011 profit forecast after it said in January that sales and profits were under pressure and that it would write down the value of its Burt's Bees acquisition.

Burt's Bees is still Clorox's fastest-growing business, even though the company "paid too much for it," Chief Executive Don Knauss said during a conference call.

Clorox is seeing strong sales of Burt's Bees and other higher-end products, such as Glad trash bags scented with Febreze. It will bring out Brita water bottles, scented Clorox bleach and other goods later this year and raise some prices to offset higher costs for materials such as resin.

The amount of innovation on the way will produce the strongest lineup in the last eight quarters, Knauss said.

"Those people with higher incomes are clearly back spending money," Knauss said during the call. Still, he cautioned that the economy remains challenging.

Sales at Wal-Mart Stores Inc (WMT.N) were not as strong as at other retailers, the company said. Clorox is excited that the world's largest retailer, which is its biggest customer, is going back to a focus on everyday low prices on branded goods.

Meanwhile, sales picked up in warehouse club stores, where large packages of Clorox's goods can carry lower margins.

MARGINS UNDER PRESSURE

Clorox earned $21 million, or 15 cents per share, in the fiscal second quarter ended on December 31, down from $110 million, or 77 cents, a year earlier.

Excluding a $258 million goodwill impairment charge, earnings from continuing operations rose to 68 cents per share from 66 cents per share. Analysts had expected a profit of 61 cents per share, according to Thomson Reuters I/B/E/S.

The company's prospects "seem constrained by slow growth categories," said BMO Capital Markets analyst Connie Maneaty.

The volume of goods sold fell 2 percent. Parts of the U.S. business were weak, particularly after disinfecting products were hot sellers a year earlier due to the H1N1 flu scare.

Volume declined in Clorox's cleaning and household goods units, which make products such as laundry additives, wipes, plastic bags and wraps, charcoal and cat litter. Volume rose 3 percent in the lifestyle segment, which includes salad dressing, barbecue sauce, water filters and Burt's Bees.

Sales fell 3 percent to $1.18 billion, coming in slightly ahead of analysts' average forecast of $1.17 billion.

Excluding the impact of the Venezuelan devaluation, sales were about equal to a year ago, Clorox said.

Margins decreased 1.8 percentage points, to 41.7 percent, due to higher manufacturing and logistics costs, Venezuela and in-store promotional spending.

Clorox said it now expects to earn $3.85 per share to $4 per share this fiscal year, excluding items, after lowering its forecast to $4.05 to $4.20 in November. The company earned $3.69 per share from continuing operations in fiscal 2010.

Analysts had already lowered their fiscal year 2011 profit expectations to an average of $3.98 per share after Clorox issued its warning in January.

The company still expects sales to be flat to up 1 percent during the fiscal year, as it had forecast in January.

Clorox said gross margin should be flat to down 50 basis points this year, due to the pressure it felt in the second quarter and $65 million to $70 million in higher commodity costs, mostly from resin.

(Reporting by Jessica Wohl, editing by Gerald E. McCormick, Dave Zimmerman)