Our collective imagination has always inspired us to find new ways to meet the needs of our consumers. From turning industrial bleach into a household product — as Annie Murray, one of the original entrepreneurial forces behind our Clorox® brand, did to save the company not long after it was founded in 1913 — to re-envisioning ourselves as a health and wellness company today, we’ve dreamed big from the start.
Our imagination hasn’t been limited to business performance, either. Our socially relevant products provide essential benefits, such as killing germs, making drinking water healthier and hydrating your skin. And we donate those products when disasters strike and people need them most. Throughout our history, we’ve never forgotten that our company is only as strong as the communities around us. That idea has manifested itself in countless ways, whether imagining new ways to make our products and operations more sustainable or helping the places where we live and work prosper.
At Clorox, our biggest dreams are best interpreted through a focus on Good Growth™ — our philosophy that profitable, sustainable and responsible growth are not mutually exclusive but in fact requirements for success in today’s marketplace.
At Clorox, we’re combining data and analytics with the power of human insights and imagination to drive value for our consumers and other stakeholders. It’s an approach we’ve taken throughout the period of our 2020 Strategy, our company’s strategic growth plan that began in fiscal year 2014 and concludes in 2020.
While our results for FY 2019 were mixed, with net sales and diluted EPS both up 1%, I’m encouraged by the progress we made toward profitable growth. We were able to expand gross margin by 20 basis points and generate strong cash flow, enabling us to increase our investments in innovation, technology transformation and other strategic initiatives.
Our commitment to this work has not subsided since we launched the 2020 Strategy in FY 2014. Starting with bold ideas grounded in consumer needs, we invested in innovation platforms that quickly resonated with consumers, such as our Fresh Step Clean Paws® low-tracking cat litter, Clorox Scentiva® cleaners with experiential fragrances, and in Burt’s Bees® lip care and face care. Initiatives in these and in other areas of our business helped us deliver incremental sales of about 3% annually from innovation over the course of the strategy period.
We also kept up our industry-leading commitment to digital marketing, which grew from 24% in FY 2014 to about 55% of our overall media spending in FY 2019. This shift has helped us increase return on investments by building direct, more sustainable connections between our brands and consumers that aren’t possible through traditional advertising.
Over the six-year 2020 Strategy period, we tapped technology to expand our business in other ways, too. In addition to using data for personalization of ads and products, we bet big on e-commerce, and it paid off. Sales in this channel grew from less than 2% to 8% of overall net customer sales.
While ensuring a healthy core portfolio, we continued to imagine how new acquisitions could allow us to grow and meet new consumer needs. Two acquisitions made during the strategy period — RenewLife® digestive health products in 2016 and Nutranext dietary supplements in 2018 — created a new, long-term growth platform and expanded our business even further into the health and wellness space.
Consistent with our focus on eliminating waste where possible, we identified nearly $700 million in cost savings over the course of the strategy period, including $122 million in FY 2019, extending our track record to 12 consecutive years of at least $100 million in annual cost savings.
Through this work and more, we’re imagining — and realizing — a healthy, long-term future for our brands.
In keeping with our Good Growth philosophy, we have big dreams for the well-being of our people, our communities and our planet — all part of our long-term commitment to corporate responsibility.
We couldn’t dream big without the imagination of our employees, all 8,800 strong. We’re committed to supporting them so they can develop as leaders and advance in their careers. We’re also dedicated to creating a nurturing, safe environment, with inclusion and diversity central to that approach. Through these initiatives, our aim is to promote a dynamic culture that enables personal and professional growth along with Good Growth for Clorox.
Our success is reflected in our 2019 employee engagement rate of 87%, which outperforms peer companies and even top-performing global companies based on industry benchmarks. This is a metric we’ve been proud to maintain at the highest levels throughout the 2020 Strategy period.
Our focus on supporting people extends beyond our own facilities to the places where we live and work. We continued our long tradition of community support in FY 2019 by providing approximately $12 million in combined U.S. product donations, foundation and corporate community cash grants, and cash for U.S. cause marketing initiatives, with about $83 million given over the strategy period. Our employees volunteered in their communities as well, giving approximately 106,000 hours of their own time in calendar year 2018 — the financial equivalent of $2.7 million — and about 675,000 hours from 2013 to 2018 — equal to more than $16 million.
As part of our dedication to leadership in environmental, social and governance, or ESG, performance, we’re committed to reducing our carbon footprint, which includes minimizing our operational footprint and enhancing the sustainability of our products. Since 2011, our baseline year, we’ve reduced greenhouse gas emissions 33%, water consumption 21% and solid-waste-to-landfill 21% per case of product sold. Each surpassed our 20% reduction goals two or more years early. We’re on track to meet our 20% energy reduction goal by 2020. Additionally, we achieved 92% traceability to the mill with priority domestic suppliers of palm derivative ingredients and ensured that more than 99% of the paper-based packaging we purchase is made from recycled or certified virgin fiber. From our 2011 baseline year to the end of the 2019 fiscal year, we made sustainability improvements to nearly 60% of our product portfolio, exceeding our 50% goal two years early.
As a signatory to the United Nations Global Compact, we reaffirm our commitment to its Ten Principles by driving a corporate responsibility strategy that imagines a brighter future for our people and the world around us.
Always imagining new ways to meet consumer needs, help our planet and communities, and do more with less translates into value for our stakeholders.
Through a relentless focus on driving shareholder value, we returned $490 million in cash dividends to shareholders in the 2019 fiscal year, including a 10% dividend increase announced in the fourth quarter on top of a 14% increase in the previous year. For the 2020 Strategy period as a whole, we maintained total shareholder returns in the top third of our peer set.
Through an equally relentless focus on the consumer, we strengthened the position of our brands in the marketplace, increasing their perceived value over the course of the strategy period:
Additionally, since FY 2015 we’ve maintained a high household penetration on our Clorox Company brands, which are now found in 90% of U.S. households.
For many of our stakeholders, we know our environmental, social and governance performance is important. To provide guidance, including comparability with our peers, we’ve expanded our third-party reporting to include disclosures aligned with the Sustainability Accounting Standards Board framework. We’ve already been reporting in accordance with frameworks of the Global Reporting Initiative, International Integrated Reporting Council and the United Nations Global Compact, and continue to lend additional credibility to our priority ESG data through voluntary assurance with a third party.
Acknowledgment from others who recognize the value in our work is always an added bonus. In FY 2019, we were gratified to be named No. 7 on Barron’s 100 Most Sustainable U.S. Companies list and No. 19 on The Wall Street Journal-Drucker Institute 2018 Management Top 250 list. We were also pleased to be named No. 11 on the 2019 50 Out Front Top Companies for Diversity by Diversity MBA and earn our 13th consecutive 100% score on the Human Rights Campaign’s Corporate Equality Index, among other recognitions.
Our competitive landscape is continuing to change rapidly, driven by an explosion of data and technology, growing empowerment and expectations of consumers, and retail disruption. Against this backdrop, we’re excited to be introducing IGNITE, our new corporate strategy.
Through this strategy, we’ll fuel growth, create new innovation experiences, reimagine how we work and evolve our portfolio. For a snapshot of our plans, refer to Ignite Strategy.
With the launch of IGNITE, we’re looking forward to seeing where our imagination will take us next and turning those dreams into value for our stakeholders.
Benno O. Dorer,
Chair and Chief Executive Officer
1 CAGR, or compound annual growth rate, measures growth over a period of time.
2 Economic profit (non-GAAP measure) represents earnings from continuing operations before income taxes, excluding noncash U.S. GAAP restructuring and intangible asset impairment charges, and interest expense; less income taxes, and less a capital charge. See here for reconciliation to the most directly comparable GAAP financial measure.
3 Free cash flow (non-GAAP measure) represents net cash provided by continuing operations less capital expenditure. See here for reconciliation to the most directly comparable GAAP financial measure.
Reviewed by Ernst & Young LLP. Please refer to the Review Report.
See footnotes below for descriptions of these non-generally accepted accounting principles, or non-GAAP measures, the reasons management believes they are useful to investors, and reconciliations to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. The non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be read in connection with the company’s consolidated financial statements presented in accordance with GAAP.
|Dollars in millions||FY19||FY18||FY17|
|Earnings from continuing operations before income taxes||$1,024||$1,054||$1,033|
|EBIT — non-GAAP||$1,118||$1,133||$1,117|
|EBIT margin — non-GAAP||18.0%||18.5%||18.7%|
|Dollars in millions and all calculations
based on rounded numbers
|Earnings from continuing operations before income taxes||$1,024||$1,054||$1,033||$983||$921||$884|
|Non-cash U.S. GAAP restructuring and
intangible asset impairment costs
|Earnings from continuing operations before income taxes,
non-cash U.S. GAAP restructuring and
intangible asset impairment charges, and interest expense
|Less: Income taxes on earnings from continuing operations
before income taxes, non-cash U.S. GAAP restructuring and intangible asset impairment charges and interest expense (ii)
|Adjusted after-tax profit||$ 901||$ 892||$ 766||$ 712||$ 672||$ 648|
|Average capital employed (iii)||$3,231||$2,977||$2,680||$2,463||$2,385||$2,486|
|Less: Capital charge (iv)||$ 291||$ 268||$ 241||$ 222||$ 214||$ 224|
|Economic profit (i) (adjusted after-tax profit less capital charge)||$ 610||$ 624||$ 525||$ 490||$ 458||$ 424|
|Dollars in millions||FY19||FY18||FY17||FY16||FY15||FY14|
|Accounts payable and accrued liabilities(v)||1,033||1,000||1,002||1,032||976||912|
|Income taxes payable||9||—||—||—||—||—|
|Deferred income taxes||50||72||61||82||95||103|
|Non-interest bearing liabilities||1,866||1,850||1,833||1,898||1,847||1,791|
|Total capital employed||3,250||3,210||2,740||2,612||2,307||2,460|
|After tax non-cash U.S. GAAP
restructuring and intangible asset impairment charges
|Adjusted capital employed||$3,251||$3,211||$2,742||$2,618||$2,308||$2,462|
|Average capital employed||$3,231||$2,977||$2,680||$2,463||$2,385||$2,486|
|Dollars in millions||FY19||FY18*||FY17*|
|Net cash provided by continuing operations (GAAP)||$ 992||$ 976||$ 868|
|Less: capital expenditures||(206)||(194)||(231)|
|Free cash flow (non-GAAP)||$ 786||$ 782||$ 637|
|Free cash flow as a percentage of net
*Net cash provided by continuing operations and free cash flow for fiscal years 2018 and 2017 have been adjusted to reflect the retrospective adoption of Accounting Standards Update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” effective July 1, 2018.
The company’s management uses free cash flow and free cash flow as a percent of net sales to help assess the cash generation ability of the business and funds available for investing activities, such as acquisitions, investing in the business to drive growth, and financing activities, including debt payments, dividend payments and stock repurchases. Free cash flow does not represent cash available only for discretionary expenditures, since the Company has mandatory debt service requirements and other contractual and non-discretionary expenditures. In addition, free cash flow may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded.