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Clorox's (CLX) 3Q25 downside results reveal a concerning trend within the consumer staple sector, echoing the recent disappointments from peers Proctor & Gamble (PG) and Kimberly-Clark (KMB). The company missed both EPS and revenue expectations as elevated inflation impacting consumer discretionary income and cautious spending patterns are clearly impacting demand across the board. CLX did reaffirm its FY25 EPS guidance, but it lowered its organic sales growth outlook, reflecting increased price sensitivity and a shift towards value-oriented alternatives, alongside slower-than-anticipated volume recovery in key product categories.

• Adjusted EPS declined by 15% to $1.35 even as gross margin expanded by 240-bps to 44.6%, primarily driven by cost savings and benefits from the divestitures of the VMS and Argentina businesses. Impressively, CLX has now achieved ten consecutive quarters of gross margin expansion. However, the Q3 gross margin gains were offset by lower sales volume and increased marketing investments aimed at stimulating demand. CLX disclosed that in the Health and Wellness segment, adjusted EBIT increased by 10%, which was partially offset by higher advertising investments.
• CLX's organic sales registered a decline of 2% in Q3 as a result of lower volume, partly offset by positive contributions from price/mix. The company is contending with persistent volume pressures, as illustrated by the 9% decline in organic sales in Q2 (impacted by lapping inventory restoration following the August 2023 cyberattack), preceded by a drop of 1% in Q1. Underlying factors include a shift toward private-label products, reduced consumer basket sizes, and retailer inventory reductions.
• In terms of segment performance, Health and Wellness continues to demonstrate relative strength, supported by consistent demand for its cleaning and disinfecting products, such as Clorox bleach, Pine-Sol, and CloroxPro. Net sales increased by 3% in Q3, driven by seven points of higher volume, and segment adjusted EBIT grew by 10% due to higher net sales and lower manufacturing and logistics costs.
• On the other end of the spectrum, the Household segment is facing significant headwinds, likely due to increased competition and consumer trade-down behavior within categories like trash bags and wipes. This segment experienced a low double-digit sales decline.

CLX is facing challenging conditions, marked by macroeconomic headwinds, shifting consumer behaviors, and competitive pressures driving a Q3 EPS miss and a lowered FY25 sales outlook. On a brighter note, its tenth consecutive quarter of gross margin expansion and the strength of its brands, such as Clorox and Burt's Bees, do provide a foundation for resilience amid an economic downturn.