What Will Clorox Look Like in 2020?
The Clorox Company unveiled its updated strategic growth plan during a Clorox Analyst Day event and live webcast at its new research and development campus in Pleasanton, Calif. The 2020 Strategy, which focuses on delivering long-term, profitable growth through the year 2020, is an evolution of the company's recently completed Centennial Strategy.
"Our Centennial Strategy guided the company during one of the toughest economic recessions the world has experienced since World War II," said Chairman and CEO Don Knauss. "Despite that, during the past five years, our strong brands, experienced management team and top-tier capabilities have enabled us to deliver total stockholder returns in the top third of our peer group."
In the past five fiscal years (July 1, 2008, through June 30, 2013), Clorox delivered total stockholder returns of 88 percent, compared to an average of 82 percent for its peer group* and an average of 40 percent for the S&P 500. Clorox's strong cash flow enabled the company to raise its dividend from $1.60 to $2.56, an increase of 60 percent. Between share repurchases and total annual dividends paid to stockholders, Clorox returned more than $2 billion in cash to its stockholders in this five-year period.
"Building on this foundation, our sights are set on 2020, with a strategy that focuses the company on the highest-value opportunities to deliver sustainable, profitable growth," said Knauss.
This press release includes some non-GAAP financial measures. See "Non-GAAP financial Information" below and at the end of this press release for more information.
The 2020 Strategy aims to continue delivering total stockholder returns in the top third of Clorox's peer group by driving economic profit (EP)**. In addition, the company's long-term financial goals include:
Benno Dorer, executive vice president and chief operating officer - Cleaning, International and Corporate Strategy, led the introduction of the 2020 Strategy at Analyst Day, commenting, "Our 2020 Strategy sets clear goals and aspirations for the company's next set of milestones. Key to achieving our goals is balancing our resources against sustaining a healthy core, anchored in our U.S. retail business, while seeking growth opportunities in profitable, margin-accretive areas adjacent to our core businesses."
To accomplish its 2020 goals, Clorox has chosen to focus on the following four strategies:
1. Engage our people as business owners.
From a team member working the manufacturing line at one of its plants to another leading a new product launch in Latin America, to yet another developing new products at the company's innovation center, Clorox people are at the forefront of executing the company's strategy. Today, Clorox is focused on driving agility further into its culture and operations. Its priority is to simplify operational processes, with a goal to empower people to make decisions faster and work even more efficiently. In addition, by leveraging its employer brand, "Our Clorox," the company will continue to foster the most important Clorox attributes that drive high levels of employee engagement, including its strong values, great brands and products, and meaningful career opportunities. In fiscal 2013, Clorox's employee engagement score reached 87 percent compared to the global benchmark of 80 percent, which is based on responses from more than 250,000 employees in 25 countries.
2. Increase our brand investment behind superior products and more targeted 3D plans.
According to Dorer, the proliferation of media channels influencing purchase decisions as well as changes in retail formats are creating more complexity in reaching target audiences. As a result, Clorox will evolve its 3D demand-creation model of desire (pre-purchase communications), decide (point-of-purchase communications) and delight (post-purchase product experience) in the face of this increasing fragmentation of consumers and retailers. The company plans to leverage deeper consumer and shopper insights as well as digital capabilities to better personalize its communications, capitalize on the growing role of e-commerce and ensure a more flexible supply chain that enables fast customization of products to address the various needs of consumers and retail customers.
Dorer also emphasized that Clorox will continue to compete based on the superior value proposition of its brands, with the goal to keep delivering consumer-preferred products. The company defines Clorox products as preferred when 60 percent of consumers favor them over competitor products in blind tests. Based on this definition, Dorer said that more than half of the company's U.S. retail portfolio comprises consumer-preferred products today -- a noteworthy achievement.
"The 3Ds power our brands to achieve category growth, market share leadership, household penetration and sales growth," said Dorer. "From targeted marketing communications, in-store merchandising and trade promotions to competitive pricing and superior products that delight consumers, our goal is to increase our total brand-building investment — already at competitive levels — by 1 percentage point over time."
Innovation continues to be the lifeblood of Clorox, contributing more than 3 percentage points of incremental sales growth in each of the last two fiscal years. Wayne Delker, senior vice president and chief innovation officer, commented on Clorox's strong innovation track record, stating, "The success of our innovation efforts comes from a balance of producing 3D news across our brands; delivering product superiority; implementing 'cost-o-vation,' the concept of cutting costs while delivering product improvements; and exploring new product platforms and categories that are adjacent to our core businesses."
George Roeth, executive vice president and chief operating officer - Household & Lifestyle, highlighted the cost-o-vation example of Clorox's new concentrated bleach, which reduces raw material inputs while delighting the consumer with improved performance. Since its launch at the start of fiscal 2013, Clorox® concentrated bleach has grown the total bleach category more than 6 percent and is expected to have delivered about 500 basis points in gross margin improvement for the bleach business through the first quarter of fiscal 2014 alone. In addition, the conversion to a new concentrated formula has reduced greenhouse gas emissions by 23 percent across the product manufacturing and distribution process.
Clorox also reviewed its plans to take innovation to the next level by leveraging its people, processes and capabilities. The company will continue to tap the ideas of people inside Clorox and the skills of external partners to create new products. Clorox's Bay Area location presents a strategic advantage, with access to the expertise of world-class academic institutions and Silicon Valley-based technology firms that can help the company advance its innovation efforts. Clorox also has made significant investments to support innovation for the long-term, including the creation of a consumer learning center to ensure product development is grounded in strong insights; an innovation center that fosters internal collaboration across multiple functions involved in the discovery, development and commercialization of new products; and a pilot plant to test product manufacturing processes.
3. Grow into profitable new categories, channels and countries.
A major focus of the 2020 Strategy will be to identify and pursue strategic opportunities to expand in markets with strong profit potential. Clorox will target opportunities that have scale and competitive dynamics enabling the company to leverage its brand strengths and demand-creation capabilities. These opportunities include categories that are adjacent to the company's core businesses in which its brands can be successful, new sales channels such as healthcare facilities, or countries where Clorox can expand its product offerings.
To illustrate, Roeth highlighted the significant growth opportunity of the company's Stop the Spread of Infection platform in retail and professional healthcare channels. Servicing the food, cleaning and maintenance, and healthcare industries, the company's Professional Products business has delivered exceptional growth through a combination of organic growth and bolt-on acquisitions, largely driven by expansion into healthcare channels. In the last five fiscal years (July 1, 2008, through June 30, 2013) the business has grown in sales from about $116 million to about $274 million, for a compounded annual growth rate of about 19 percent. Roeth also discussed the expansion of the Burt's Bees business internationally, particularly in Asia where the brand has a strong fan base. He noted the example of Burt's Bees product sales in South Korea, which grew nearly 50 percent in fiscal 2013.
On the international front, the company will continue to drive growth in geographies and categories where it has a significant presence and competitive advantage, including Canada, Latin America, Australia, New Zealand and the Middle East. In particular, Clorox will invest disproportionately behind its fastest-growing markets, including Chile, Colombia and Peru, where it has No. 1 or No. 2 brands. Clorox also remains focused on managing the business challenges it faces in Venezuela and Argentina, where price controls and high inflation are impacting sales and profits. Optimizing cash flow, adjusting demand-building investments and implementing cost savings are among the company's priorities to address the challenges in these two markets.
4. Fund growth by reducing waste in our work, products and supply chain.
The company's plans to expand margins over the long-term include continuing to deliver strong cost savings, reducing selling and administrative expenses to 14 percent of sales or less over time and transforming into a more agile enterprise.
Roeth said, "When it comes to everyday tasks and operational processes, we're unleashing the power of Clorox people to drive our business with greater speed and efficiency. We'll also focus the company on work that delivers the highest value to our consumer. Looking through this consumer lens will help us make better decisions about resource allocation to support our goals for growth."
Cost discipline is a company hallmark. For more than 10 consecutive years, Clorox's cost savings initiatives have delivered about 150 basis points in annual margin expansion. This has helped the company weather the challenging economic environment of the past several years, when increased commodity costs and high inflation in international markets impacted its manufacturing costs and margin.
"Innovation comes to life in all areas of the company," stated Roeth. "We've been able to think as creatively about cost savings as we have about marketing and product innovation. We've also made smart investments in areas like technology, product supply and environmental sustainability to help drive even greater efficiencies across our operations."
A replay of the Clorox Analyst Day webcast as well as the presentations will be available at Clorox investor events.
*Peer group: 17 consumer packaged goods companies, excluding Clorox, for benchmarking purposes.
**Economic Profit (EP), a non-GAAP measure, is defined by the company as earnings from continuing operations before income taxes, noncash restructuring-related and asset impairment costs, noncash goodwill and intangibles impairment and interest expense; less an amount of tax based on the effective tax rate before any noncash goodwill and intangibles impairment charge, and less a charge equal to average capital employed multiplied by the weighted-average cost of capital. Management uses EP to evaluate business performance and allocate resources, and it is a component in determining management's incentive compensation. Management believes EP provides additional perspective to investors about financial returns generated by the business and represents profit generated over and above the cost of capital used by the business to generate that profit.
"Our Centennial Strategy guided the company during one of the toughest economic recessions the world has experienced since World War II," said Chairman and CEO Don Knauss. "Despite that, during the past five years, our strong brands, experienced management team and top-tier capabilities have enabled us to deliver total stockholder returns in the top third of our peer group."
In the past five fiscal years (July 1, 2008, through June 30, 2013), Clorox delivered total stockholder returns of 88 percent, compared to an average of 82 percent for its peer group* and an average of 40 percent for the S&P 500. Clorox's strong cash flow enabled the company to raise its dividend from $1.60 to $2.56, an increase of 60 percent. Between share repurchases and total annual dividends paid to stockholders, Clorox returned more than $2 billion in cash to its stockholders in this five-year period.
"Building on this foundation, our sights are set on 2020, with a strategy that focuses the company on the highest-value opportunities to deliver sustainable, profitable growth," said Knauss.
This press release includes some non-GAAP financial measures. See "Non-GAAP financial Information" below and at the end of this press release for more information.
The 2020 Strategy aims to continue delivering total stockholder returns in the top third of Clorox's peer group by driving economic profit (EP)**. In addition, the company's long-term financial goals include:
- Growing net sales 3-5 percent annually
- Expanding earnings before interest and income taxes (EBIT) margin 25-50 basis points annually
- Generating free cash flow of 10 percent to 12 percent of sales annually
Benno Dorer, executive vice president and chief operating officer - Cleaning, International and Corporate Strategy, led the introduction of the 2020 Strategy at Analyst Day, commenting, "Our 2020 Strategy sets clear goals and aspirations for the company's next set of milestones. Key to achieving our goals is balancing our resources against sustaining a healthy core, anchored in our U.S. retail business, while seeking growth opportunities in profitable, margin-accretive areas adjacent to our core businesses."
To accomplish its 2020 goals, Clorox has chosen to focus on the following four strategies:
1. Engage our people as business owners.
From a team member working the manufacturing line at one of its plants to another leading a new product launch in Latin America, to yet another developing new products at the company's innovation center, Clorox people are at the forefront of executing the company's strategy. Today, Clorox is focused on driving agility further into its culture and operations. Its priority is to simplify operational processes, with a goal to empower people to make decisions faster and work even more efficiently. In addition, by leveraging its employer brand, "Our Clorox," the company will continue to foster the most important Clorox attributes that drive high levels of employee engagement, including its strong values, great brands and products, and meaningful career opportunities. In fiscal 2013, Clorox's employee engagement score reached 87 percent compared to the global benchmark of 80 percent, which is based on responses from more than 250,000 employees in 25 countries.
2. Increase our brand investment behind superior products and more targeted 3D plans.
According to Dorer, the proliferation of media channels influencing purchase decisions as well as changes in retail formats are creating more complexity in reaching target audiences. As a result, Clorox will evolve its 3D demand-creation model of desire (pre-purchase communications), decide (point-of-purchase communications) and delight (post-purchase product experience) in the face of this increasing fragmentation of consumers and retailers. The company plans to leverage deeper consumer and shopper insights as well as digital capabilities to better personalize its communications, capitalize on the growing role of e-commerce and ensure a more flexible supply chain that enables fast customization of products to address the various needs of consumers and retail customers.
Dorer also emphasized that Clorox will continue to compete based on the superior value proposition of its brands, with the goal to keep delivering consumer-preferred products. The company defines Clorox products as preferred when 60 percent of consumers favor them over competitor products in blind tests. Based on this definition, Dorer said that more than half of the company's U.S. retail portfolio comprises consumer-preferred products today -- a noteworthy achievement.
"The 3Ds power our brands to achieve category growth, market share leadership, household penetration and sales growth," said Dorer. "From targeted marketing communications, in-store merchandising and trade promotions to competitive pricing and superior products that delight consumers, our goal is to increase our total brand-building investment — already at competitive levels — by 1 percentage point over time."
Innovation continues to be the lifeblood of Clorox, contributing more than 3 percentage points of incremental sales growth in each of the last two fiscal years. Wayne Delker, senior vice president and chief innovation officer, commented on Clorox's strong innovation track record, stating, "The success of our innovation efforts comes from a balance of producing 3D news across our brands; delivering product superiority; implementing 'cost-o-vation,' the concept of cutting costs while delivering product improvements; and exploring new product platforms and categories that are adjacent to our core businesses."
George Roeth, executive vice president and chief operating officer - Household & Lifestyle, highlighted the cost-o-vation example of Clorox's new concentrated bleach, which reduces raw material inputs while delighting the consumer with improved performance. Since its launch at the start of fiscal 2013, Clorox® concentrated bleach has grown the total bleach category more than 6 percent and is expected to have delivered about 500 basis points in gross margin improvement for the bleach business through the first quarter of fiscal 2014 alone. In addition, the conversion to a new concentrated formula has reduced greenhouse gas emissions by 23 percent across the product manufacturing and distribution process.
Clorox also reviewed its plans to take innovation to the next level by leveraging its people, processes and capabilities. The company will continue to tap the ideas of people inside Clorox and the skills of external partners to create new products. Clorox's Bay Area location presents a strategic advantage, with access to the expertise of world-class academic institutions and Silicon Valley-based technology firms that can help the company advance its innovation efforts. Clorox also has made significant investments to support innovation for the long-term, including the creation of a consumer learning center to ensure product development is grounded in strong insights; an innovation center that fosters internal collaboration across multiple functions involved in the discovery, development and commercialization of new products; and a pilot plant to test product manufacturing processes.
3. Grow into profitable new categories, channels and countries.
A major focus of the 2020 Strategy will be to identify and pursue strategic opportunities to expand in markets with strong profit potential. Clorox will target opportunities that have scale and competitive dynamics enabling the company to leverage its brand strengths and demand-creation capabilities. These opportunities include categories that are adjacent to the company's core businesses in which its brands can be successful, new sales channels such as healthcare facilities, or countries where Clorox can expand its product offerings.
To illustrate, Roeth highlighted the significant growth opportunity of the company's Stop the Spread of Infection platform in retail and professional healthcare channels. Servicing the food, cleaning and maintenance, and healthcare industries, the company's Professional Products business has delivered exceptional growth through a combination of organic growth and bolt-on acquisitions, largely driven by expansion into healthcare channels. In the last five fiscal years (July 1, 2008, through June 30, 2013) the business has grown in sales from about $116 million to about $274 million, for a compounded annual growth rate of about 19 percent. Roeth also discussed the expansion of the Burt's Bees business internationally, particularly in Asia where the brand has a strong fan base. He noted the example of Burt's Bees product sales in South Korea, which grew nearly 50 percent in fiscal 2013.
On the international front, the company will continue to drive growth in geographies and categories where it has a significant presence and competitive advantage, including Canada, Latin America, Australia, New Zealand and the Middle East. In particular, Clorox will invest disproportionately behind its fastest-growing markets, including Chile, Colombia and Peru, where it has No. 1 or No. 2 brands. Clorox also remains focused on managing the business challenges it faces in Venezuela and Argentina, where price controls and high inflation are impacting sales and profits. Optimizing cash flow, adjusting demand-building investments and implementing cost savings are among the company's priorities to address the challenges in these two markets.
4. Fund growth by reducing waste in our work, products and supply chain.
The company's plans to expand margins over the long-term include continuing to deliver strong cost savings, reducing selling and administrative expenses to 14 percent of sales or less over time and transforming into a more agile enterprise.
Roeth said, "When it comes to everyday tasks and operational processes, we're unleashing the power of Clorox people to drive our business with greater speed and efficiency. We'll also focus the company on work that delivers the highest value to our consumer. Looking through this consumer lens will help us make better decisions about resource allocation to support our goals for growth."
Cost discipline is a company hallmark. For more than 10 consecutive years, Clorox's cost savings initiatives have delivered about 150 basis points in annual margin expansion. This has helped the company weather the challenging economic environment of the past several years, when increased commodity costs and high inflation in international markets impacted its manufacturing costs and margin.
"Innovation comes to life in all areas of the company," stated Roeth. "We've been able to think as creatively about cost savings as we have about marketing and product innovation. We've also made smart investments in areas like technology, product supply and environmental sustainability to help drive even greater efficiencies across our operations."
A replay of the Clorox Analyst Day webcast as well as the presentations will be available at Clorox investor events.
*Peer group: 17 consumer packaged goods companies, excluding Clorox, for benchmarking purposes.
**Economic Profit (EP), a non-GAAP measure, is defined by the company as earnings from continuing operations before income taxes, noncash restructuring-related and asset impairment costs, noncash goodwill and intangibles impairment and interest expense; less an amount of tax based on the effective tax rate before any noncash goodwill and intangibles impairment charge, and less a charge equal to average capital employed multiplied by the weighted-average cost of capital. Management uses EP to evaluate business performance and allocate resources, and it is a component in determining management's incentive compensation. Management believes EP provides additional perspective to investors about financial returns generated by the business and represents profit generated over and above the cost of capital used by the business to generate that profit.