Morning Brief: Clorox shares erase all of their COVID gains

Myles Udland breaks down Wednesday’s Morning Brief, which asks the question of what COVID trends will continue to stay post-pandemic as Clorox posts a disappointing Q4 due to dwindling demand.

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BRIAN SOZZI: But of course, we're going to start right now with the Morning Brief newsletter and Myles, you remain locked and loaded, really, on that-- that bad quarter out of Clorox.

MYLES UDLAND: Yeah, it was a tough quarter for Clorox specifically, but I think the lesson that I took away-- and there's a couple of different lessons that one could take away if they so choose to take away lessons from the likes of Clorox earnings call. But to me, it's that the pandemic craze around wiping down every surface, and we see this in our normal course of our lives, but the disinfectant craze, let's call it. And granted, Clorox has a broader portfolio than that, but the namesake product is, of course, cleaning stuff off. That is over.

That phase of the pandemic is over. You can now go into a store and you can get as much Clorox product as you want, give or take. And I think what's interesting about looking at the stock and the company's trajectory holistically is it also gets to another theme that we've talked about in the program, that we've thought about, that I think we're going to continue to stay on in probably the years, years plus ahead, which is, what trends from the pandemic, what trends that were forced upon us by COVID are going to stick around? And if you look at the share price action in Clorox, the market is saying, after it seemed for a time that this was a new trajectory for the business, that's actually not going to be the case longer term. Clorox shares right now are trading at almost exactly the same price that the stock traded at in March of 2020.

Now, the premium that investors-- What investors are assigning the value, investors are assigning to the company has actually gone up a little bit in that time. Company yesterday guiding to a midpoint of full year adjusted profits of $5.55 per share. Back in February of 2020, the company was expecting to earn around $6.18 per share. So we can do the quick math, a couple turns on the valuation there.

So it's not like investors necessarily value the company at so much less than they did pre-pandemic, but there are now questions around, what is Clorox? And I think in the coming quarters, those are going to return in a more pointed way. Whereas for several quarters over the last year it's been, oh, well it's a pandemic play. Oh, it's benefiting from, you know, people being at home more.

They were asked about the trash bag business potential slow down, because people go back to the office, they fill up their own trash bags less frequently. So on and so forth. So I think a lot of lessons here, but really, when you go down the line, which companies quote, unquote, "benefited" from COVID, we are going to see which ones don't stick around, and I think the disinfectant craze would seem to be one that is not likely to have a lasting impact.

BRIAN SOZZI: One thing that may not stick around for Clorox, the Renew Life business. It's a vitamin business, it's a competitive business. They acquired it several years ago at a very peak multiple and I do suspect it could be a quick win for Clorox and new CEO Linda Rendle if they sell that business and save some expense here. It's not a priority for them.

MYLES UDLAND: And that's another pandemic craze, too.

BRIAN SOZZI: Mm-hmm.

MYLES UDLAND: I mean, how many people did you hear about, because, OK, we did the whole hydroxychloroquine thing. I mean, vitamin D is a major part of beefing up one's immune system and I think there was a major vitamin push from a lot of people when they were at home during the pandemic wanting to be healthier. And so you mentioned that part of the business as well, under some pressure. And we've talked, Sozzi, on this program about a couple of tough earnings calls that we've seen management teams face. It was a tough one yesterday.

BRIAN SOZZI: Tough one yesterday.

MYLES UDLAND: It was tough.

BRIAN SOZZI: You know what is not tough? I have a new product for you. I hear you're getting a new dishwasher.

MYLES UDLAND: That's right.

BRIAN SOZZI: Microband 24 from P&G. You spray it on, it puts a force field over your products and it prevents bacteria from getting through.

MYLES UDLAND: Well, this it's a brand new-- it's a brand new dishwasher.

BRIAN SOZZI: Spray it.

MYLES UDLAND: Presumably it's already clean?

BRIAN SOZZI: No, it's not.

MYLES UDLAND: Our dishwasher guy told us you just got to make sure you use the pods. But back to the call quickly, though, just something that, you know, one analyst, I believe is was an analyst over at Citi said, and her preamble to the question was something on the-- something along the lines about, I've been covering this company for 20 years and I've never heard of a margin guide quite like this or something to that effect. And you don't want to be told by an analyst covering your company that they've been covering it for that long. Because they're basically telling you, what are we doing here?

BRIAN SOZZI: Well, that analyst is not going to get their-- their quarterly meeting. Let's just say that.

MYLES UDLAND: No, I think they will. The stock was down nine-- It's a consumer staples and the stock was down 9% in a single day. There's really nothing-- And that's another point I made-- I try to make and, you know, it's a brief piece. But as a management team in that position, all you do is take your medicine.

BRIAN SOZZI: Yep.

MYLES UDLAND: You go out, you put out a bad quarter, you get through the call and I think you've a-- you've got a couple of really important quarters coming up here if you're Clorox.

BRIAN SOZZI: Get a drink after.