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View the full Nov 3, 2026 version

Price: $88.00 → $106.86(+21.4%)
Discount category: Deep below intrinsic value → Far below intrinsic value
Next earnings: Nov 2, 2026 → Feb 2, 2027
Next earnings is estimate: No → Yes
Thesis: Clorox finished a five-year project to replace its old ERP computer system in early 2026. The switchover caused a swing in retailer orders, and fiscal 2026 organic sales fell 8%. Gross margin fell 2.9 points, and the switchover caused only about one point of that drop. Investors fear that the rest shows lasting share loss to store brands, higher costs and a stressed consumer. Management guides fiscal 2027 organic sales growth of about 3.5% to 4.5%. More than 3.5 points of that growth come from the easy comparison with the weak prior year, so the underlying growth is about flat. added: On November 2, 2026, Clorox kept its fiscal 2027 sales and adjusted EPS ranges. But it cut its gross margin outlook to about 41.5% from about 42% because costs rose, and it now expects adjusted EPS near the low end of the range. Debt for the GOJO (Purell) purchase and the Glad joint-venture buyout raised net debt to about removed: four added: 3.8 times EBITDA, a common measure of operating profit, by our calculation. S&P cut the credit rating in February 2026. On October 28, 2026, the board named Fabian Garcia, a Unilever executive, as the next CEO from January 5, 2027. For the gap to close, three conditions must be true. Organic sales must grow as removed: guided, after a first-quarter decline that management already expects. added: guided while input costs rise. Net debt must fall toward management's target of about 2.5 times EBITDA by the end of calendar 2027. The new CEO must give a clear plan for GOJO and for debt reduction. The removed: first added: next test is the removed: first-quarter added: second-quarter fiscal 2027 removed: report on November 2, 2026, added: report, expected in early February 2027, where the removed: full-year outlook must removed: hold. added: hold after the margin cut. The removed: second-quarter and third-quarter removed: reports added: report and the new CEO's first plan in 2027 then show whether gross margin and GOJO profit recover. If these hold, the gap can close over the next four to six quarters. If sales added: or margin disappoint again or the new CEO changes the plan, the discount can stay into 2028.
Risks: Debt for the GOJO purchase and the Glad joint-venture buyout raised net debt to removed: $4.93 added: $4.97 billion at removed: June added: September 30, 2026. That is about removed: 4.2 added: 3.8 times removed: fiscal 2026 EBITDA, added: EBITDA of the four quarters to that date, by our calculation, or about removed: 3.9 added: 3.5 times on adjusted EBITDA. Clorox expected about 3.6 times when it signed the GOJO deal, but EBITDA fell. S&P already cut the credit rating once. Management's plan to reach about 2.5 times by the end of calendar 2027 needs earnings to recover. CEO Linda Rendle steps down for health reasons on January 5, 2027, and Fabian Garcia, who comes from Unilever, becomes CEO on that date. Clorox named a Chief Operating Officer in June 2026. The change of leader adds risk while Clorox integrates GOJO and repairs sales after the ERP switchover. removed: Management expects added: In November 2026, management said that input cost inflation removed: of more added: is higher than removed: $200 million in added: it expected, and it cut the fiscal 2027 removed: and added: gross margin outlook to about 41.5%. It also says that consumers are under stress. Without the easy comparison with fiscal 2026, organic sales growth is about flat in the guidance. A weaker consumer or more trade-down to store brands can push sales and margin below the outlook. Store-brand pressure hurts the Household segment most. This segment includes trash bags and cat litter. In fiscal 2026 it earned only a 10.7% margin and 16% of segment profit, but it is Clorox's second-largest segment by sales. Walmart bought 26% of Clorox's products in fiscal 2026. A change in Walmart's orders, shelf space or store-brand plans has a large effect on Clorox's sales. The lawsuit for about $380 million against Cognizant continues, but no trial date is public. A payment, if any, is probably years away, so the suit does not help the debt plan in the near term.
Balance sheet: Cash: removed: $143M added: $184M Debt: removed: $5.1B added: $5.2B Net debt: removed: $4.9B added: $5.0B EBITDA, last 12 months: removed: $1.2B added: $1.3B Net debt / EBITDA: removed: 4.2× (high) added: 3.8× (medium) Interest cover: removed: 7.0× added: 6.6× Undrawn credit line: $2.0B Ratings: S&P BBB, Moody's Baa1 Clorox borrowed to buy GOJO for about $2.15 billion in April 2026, and the debt now limits its choices. removed: Fiscal 2026 free cash flow was $405 million after the one-time $476 million Glad payment, and $881 million before it. Dividends of $602 million were larger than the first figure. Most of its debt is unsecured debt of the parent company. removed: Debt does not include $530 million of lease liabilities. At removed: June added: September 30, 2026, added: debt was $5.16 billion. Of this, $3.98 billion was fixed-rate long-term debt, mostly senior removed: notes. This includes $1.5 added: notes, and $1.18 billion removed: of new notes from May 2026, due 2031 to 2036, which repaid the term loan for GOJO. $1.09 billion was short-term borrowings at floating rates, mostly commercial paper. added: Cash was $184 million, so net debt was $4.97 billion, up from $4.93 billion at June 30, 2026. Debt does not include $436 million of operating lease liabilities. In the first quarter of fiscal 2027, to September 30, 2026, free cash flow was $105 million, and dividends of $151 million were larger. Clorox added: bought back no shares in that quarter. Clorox does not publish EBITDA. The EBITDA figure is our removed: calculation: fiscal 2026 added: calculation for the four quarters to September 30, 2026: EBIT of removed: $913 added: $1,043 million plus depreciation and amortization of removed: $247 added: $265 million. Interest cover uses the same EBIT and interest expense of removed: $130 added: $159 million. removed: GOJO added profit for only one quarter. Interest removed: cost will rise added: expense was $52 million in added: the first quarter of fiscal 2027, added: against $23 million a year earlier, because the removed: new added: GOJO debt is added: now outstanding for the full removed: year. Long-term added: quarter. The fiscal 2026 10-K shows small long-term debt maturities removed: are small until $901 million in fiscal 2028. removed: $764 million added: At September 30, 2026, $1.96 billion of removed: the undrawn credit lines added: was undrawn: $764 million expires removed: on added: in March removed: 5, 2027, and $1.2 billion matures in March 2030. added: These lines require EBITDA of at least 4 times interest expense, and Clorox complied at September 30, 2026. S&P cut its long-term rating from BBB+ in February 2026. A cut below investment grade would let derivative counterparties ask for full collateral. Equity that Clorox shareholders own was removed: only $90 added: negative $39 million added: at September 30, 2026, because of years of buybacks. This is not a solvency problem by itself. The cash must go to the dividend and to debt reduction toward the 2.5 times target by the end of calendar 2027. This leaves little room for buybacks or another deal. As of removed: Jun added: Sep 30, 2026.
Checkpoints: Oct 28, 2026: Board names a permanent CEO. Passed. Watch: A named successor with a clear plan for GOJO and debt reduction passes; a search that continues past fiscal Q3 2027 fails. Outcome: The board named Fabian Garcia of Unilever as CEO from January 5, 2027, before fiscal Q3 2027, and his plan for GOJO and debt is the next test. Nov 2, 2026: Fiscal Q1 2027 earnings: full-year outlook holds. removed: Pending. added: Failed. Watch: A first-quarter sales decline no larger than management warned, an unchanged fiscal 2027 outlook and lower net debt pass; a cut to the sales or earnings outlook fails. added: Outcome: Clorox kept its sales and adjusted EPS ranges, but it now expects EPS near the low end, it cut the gross margin outlook to about 41.5% and net debt rose a little to $4.97 billion, so the pass conditions did not all hold. Feb added: 2, 2027 (estimate): Fiscal Q2 2027 earnings: margin repair and GOJO. Pending. Watch: Gross margin removed: growth and added: in line with the new outlook of about 41.5%, GOJO profit in line with plan added: and lower net debt pass; a guidance cut or a new credit downgrade fails. Q2 2027 (estimate): New CEO's plan for GOJO and debt. Pending. Watch: A plan that keeps the target of about 2.5 times EBITDA by the end of calendar 2027 and a clear GOJO plan passes; a later debt target or a cut to the outlook fails. Dec 2027 (estimate): Leverage back near 2.5 times EBITDA. Pending. Watch: Net leverage near 2.5 times by the end of calendar 2027 passes; leverage still above 3.5 times fails.
Recent events: added: Nov 2, 2026: Clorox reported Q1 fiscal 2027 results. Net sales rose 33% to $1.91 billion, and GOJO added about 15 points. Organic sales rose 18%, and about 18 points of that came from the easy comparison with the ERP inventory drawdown a year earlier. Gross margin fell 1.3 points to 40.4%, and adjusted EPS rose 82% to $1.55. Clorox kept its fiscal 2027 outlook for net sales growth of 13% to 14% and adjusted EPS of $5.70 to $6.00, but it now expects adjusted EPS closer to the low end. It cut its gross margin outlook to about 41.5% from about 42% because of higher input costs. Oct 28, 2026: The board named Fabian Garcia as CEO and as a director from January 5, 2027. Since 2022 he has led the Personal Care business group of Unilever, and he was CEO of Revlon from 2016 to 2018. On that date, Linda Rendle leaves her roles as CEO, Chair and director, and she stays as a senior advisor until April 2, 2027. Lead Independent Director Matthew Shattock becomes Independent Chair. Oct 12, 2026: Clorox confirmed that it will publish its first-quarter fiscal 2027 results on November 2, 2026, at 4:15 p.m. ET, with an analyst webcast at 5 p.m. ET. Sep 28, 2026: Clorox combined its CloroxPro business and GOJO into one professional unit, Clorox Purell ProCare, which sells to hospitals, schools, offices and other businesses. Sep 9, 2026: At the Barclays Global Consumer Staples Conference, Clorox kept its fiscal 2027 outlook. Management said that first-quarter organic sales will fall because of the timing of retailer promotions, that input cost inflation will be more than $200 million, and that gross margin can fall a little more than the outlook shows. Aug 3, 2026: Clorox reported fiscal 2026 results. Net sales fell 5% to $6.72 billion, organic sales fell 8%, and adjusted earnings per share fell 28% to $5.53. For fiscal 2027, Clorox guided net sales growth of 13% to 14% with GOJO, organic sales growth of about 3.5% to 4.5%, gross margin of about 42%, and adjusted earnings per share of $5.70 to $6.00. Jul 31, 2026: Clorox increased its quarterly dividend to $1.25 per share from $1.24. Jun 17, 2026: Clorox named Chris Hyder Executive Vice President and Chief Operating Officer, and Nina Barton Executive Vice President and Chief Growth and Strategy Officer. May 28, 2026: CEO Linda Rendle asked the board to start a search for her successor. She is free of cancer, but the side effects of treatment that prevents a return of breast cancer caused her decision. She stays Chair and CEO until the board names a successor. Apr 1, 2026: Clorox completed its purchase of GOJO Industries, the maker of Purell. The announced price was $2.25 billion, or $1.92 billion after expected tax benefits. Clorox paid about $2.15 billion in cash at closing, with commercial paper and a new term loan. Mar 25, 2026: A California judge dismissed the intentional misrepresentation claim in Clorox's lawsuit against Cognizant, but kept most of the lawsuit. No trial date is public. Mar 2, 2026: Clorox paid $476 million in cash for the 20% interest that Procter & Gamble held in the Glad bags and wraps joint venture. The joint-venture agreement ended on January 31, 2026, and the agreement required Clorox to buy this interest at fair value. Feb 18, 2026: In February 2026, S&P Global Ratings cut Clorox's long-term credit rating to BBB from BBB+. The cut came after Clorox agreed in January 2026 to buy GOJO with new debt. Jul 22, 2025: Clorox sued its IT services contractor, Cognizant, for about $380 million in the Superior Court of Alameda County, California. Clorox says that during the August 2023 cyberattack, Cognizant's service desk reset passwords and multi-factor login for a caller who claimed to be an employee.