CLX Bearish Signal: Time to Consider Puts?

The Clorox Company manufactures and markets consumer and professional products globally. Its core business includes cleaning and disinfecting products under brands like 'Clorox', 'Pine-Sol', 'Tilex', and 'Liquid-Plumr'; bags and wraps under the 'Glad' brand; cat litter under 'Fresh Step'; grilling products under 'Kingsford'; dressings under 'Hidden Valley'; water-filtration products under 'Brita'; and personal care products under 'Burt's Bees'. Professional products are marketed under the 'CloroxPro' and 'Clorox Healthcare' brands. The company's primary customers are mass retailers, grocery outlets, warehouse clubs, and e-commerce channels. Clorox differentiates itself through its 'IGNITE' strategy, focusing on innovation, streamlined operations, and sustainability to drive profitable growth and long-term value creation. Over 80% of its sales come from brands holding the No. 1 or No. 2 market share positions.

Clorox (CLX) presents a bullish short-term outlook based on recent earnings and guidance news. The company reported Q1 adjusted EPS of $0.85, exceeding analyst estimates of $0.79. Sales also beat expectations, coming in at $1.429 billion versus the $1.400 billion estimate. While the EPS represents a significant year-over-year decrease, the positive surprise relative to expectations is likely to drive positive sentiment. Furthermore, Clorox affirmed its FY2026 adjusted EPS guidance of $5.95-$6.30, aligning with the $5.95 analyst estimate. Affirming guidance, especially in the current macroeconomic environment, signals confidence in the company's future performance. Given these positive earnings and reaffirmed guidance, the stock is likely to experience upward momentum in the short term. The absence of negative macro news further supports this outlook, suggesting a favorable environment for CLX within the consumer defensive sector.

CLX's technical outlook is decidedly bearish. The stock price has experienced a significant downtrend over the past 90 days, falling from approximately $120 to around $110. The price is trading well below its 50-day SMA (120.22) and 200-day SMA (132.58), confirming the downtrend. The 21-day EMA at 116.39 further reinforces this bearish signal. Momentum indicators also point to continued weakness. The MACD is deeply negative at -2.68, and the RSI is at an oversold level of 26.98, though this could suggest a possible short-term bounce. The ADX at 28.76 indicates a strong trend, supporting further downward movement. Stochastics are also very low, suggesting oversold conditions, but in a strong downtrend, this can persist. Recent price action shows a failure to sustain any significant rallies, indicating strong selling pressure. The Bollinger Bands are wide, reflecting high volatility and a potential for further declines as the price tests the lower band. Overall, the technical indicators suggest a high probability of continued bearish momentum in the coming 1-3 months.

The Clorox Company's MD&A presents a challenging near-term outlook. `Net sales` decreased by 19% to $1,429 million compared to $1,762 million in the prior year, which management attributes to lower shipments following ERP transition-related activities. The `Gross profit` margin also declined significantly, from 45.8% to 41.7%, driven by lower volume and higher manufacturing and logistics costs. `Net cash provided by operations` decreased substantially to $93 million from $221 million in the prior year, impacted by lower cash earnings. Management highlights ongoing macroeconomic uncertainty and geopolitical instability, expecting the operating environment to remain 'volatile and challenging' as consumers face spending pressures. The company is navigating the 'stabilization phase' of its ERP implementation, which has resulted in 'some sales timing impacts'. While the company believes it has sufficient liquidity, current liabilities exceed current assets by $539 million, primarily due to the Glad venture agreement terminal obligation. Overall, the company faces significant headwinds, and the ERP implementation adds further complexity.

The Clorox Company's Q4 and fiscal year 2025 performance revealed weaker-than-expected top-line growth, although this was balanced by strong margin and earnings. CEO Linda Rendle noted that Q4 sales were 'lower-than-expected' when excluding the ERP retail inventory build. The company experienced an 8% organic sales growth, which, when adjusted for a 13% to 14% inventory build at retailers due to the ERP launch, resulted in a negative 5% performance. This was below the anticipated negative 3%, primarily due to inventory destocking and lower share performance than expected. Management expects continued sluggish category trends in the front half of fiscal year 2026, with sequential improvement in the back half driven by innovation and net revenue management. The ERP implementation, a complete 'greenfield implementation' rather than an upgrade, caused significant noise between fiscal years 2025 and 2026. CFO Luc Bellet clarified that fiscal year 2025 sales are higher by 3.5% to 4% due to early shipments, while fiscal year 2026 sales will be lower by the same amount. The company anticipates higher costs from tariffs of around $40 million but plans to offset this through various mitigating actions, including sourcing changes and strategic pricing. Overall, the call suggests near-term headwinds and execution challenges, tempered by confidence in long-term growth strategies and ongoing transformation efforts.

CLX's financial performance presents a mixed picture. Revenue has been volatile, starting at $1,990 million in Q2 2024 and ending at $1,429 million in Q1 2026, indicating a downward trend. The gross profit ratio has fluctuated, from a high of 0.464 in Q4 2025 to a low of 0.417 in the most recent quarter, suggesting inconsistent profitability. Operating cash flow also exhibits variability, with the latest quarter showing $93 million, which is lower compared to previous periods. Total debt has increased slightly from $3,129 million in Q2 2024 to $3,078 million in Q1 2026. While the company has generally maintained positive operating cash flow, the declining revenue and fluctuating profitability metrics raise concerns about its financial stability and future performance over the next 12 months.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting effective cost management. Return on Equity (ROE) has improved, showcasing efficient capital allocation. While the Price-to-Earnings (P/E) ratio is elevated, it is potentially justified by the company's growth prospects. The Debt-to-Equity ratio has decreased, reflecting a healthier balance sheet and reduced financial risk. The current ratio is at a healthy level, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable combination of growth, profitability, and balance sheet strength, supporting a positive outlook for the next 12 months, although the high P/E ratio warrants close monitoring.