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Clorox raises prices, revenue up; net income drops

FILE - In this July 15, 2011 file photo, Clorox brand products line the shelf of a supermarket in the East Village neighborhood of New York. Clorox Co.’s net income plummeted nearly 40 percent in the fiscal first quarter Wednesday, Nov. 2, 2011, largely because last year’s period included the benefit of selling a unit. FILE - In this July 15, 2011 file photo, Clorox brand products line the shelf of a supermarket in the East Village neighborhood of New York. Clorox Co.’s net income plummeted nearly 40 percent in the fiscal first quarter Wednesday, Nov. 2, 2011, largely because last year’s period included the benefit of selling a unit. (AP Photo/Mary Altaffer, File)
By Christina Rexrode
AP Business Writer / November 2, 2011

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NEW YORK—Clorox Co. has raised prices to combat higher costs. That's helped lift revenue. But some customers are also cutting back.

In its earnings report for the fiscal first quarter Wednesday, the consumer products maker told a story that's familiar to many companies this season. Clorox increased prices to make up for its own higher costs for materials and manufacturing.

So far, the higher prices have been a boon. Revenue rose 3 percent to $1.31 billion, beating analysts' expectations. Sales volume increased 2 percent as customers kept buying many products despite the higher prices.

The Oakland, Calif., company still expects revenue to increase 1 to 3 percent this fiscal year. But executives cautioned that many price increases took effect in August, and will cause flat sales volume for the year.

The performance of Glad trash bags underscored that point. Clorox raised their price by 10 percent in May. Their sales volume has fallen since then.

Chief operating officer Larry Peiros said that on most brands besides Glad, the impact of higher prices "is just starting."

"So the consumer impact is barely out there," Peiros said.

The August price hikes included a 7 percent increase in Hidden Valley Ranch salad dressing, a 3 percent increase in Brita pitchers, a 5 percent increase in Liquid-Plumr products and a 12 percent increase in Clorox liquid bleach.

Clorox hopes it can lure squeezed U.S. customers to keep spending on new, higher-margin products, even as they cut back on basics like trash bags. New items like "on the go" bottles from the Brita water filter unit and a slightly cheaper line of personal care products from Burt's Bees should help, the company said.

The company is taking other steps to bolster revenue. Like many other U.S. companies, Clorox wants to expand in emerging markets to make up for weak consumer spending in the U.S. International revenue made up about 22 percent of Clorox's total revenue this quarter, up from about 21 percent a year ago.

Executives said higher costs for materials and manufacturing will continue to be a challenge. Those costs pushed down the gross margin, which measures profitability as the percent of revenue left over after the company pays its costs, to 41.8 percent from 44.3 percent in the quarter. Though revenue rose 3 percent, the cost of making those products rose nearly 8 percent.

In a conference call, Clorox executives and analysts skimmed over the fact that net income plummeted nearly 40 percent in the quarter, which covered July through September. That decline was largely because the company benefited in the year-ago period from selling its auto care business. Excluding that gain, net income fell 7 percent in the quarter.

After adjusting for one-time items, per-share earnings were 98 cents, beating analysts' expectations of 94 cents.

The company said it also spent about $12 million in advisory fees fighting off a takeover attempt from activist investor Carl Icahn.

Icahn had offered to buy the company in July and simultaneously urged it to try to sell itself to a competitor, saying Clorox would be worth more under one of those options. Clorox resisted, saying his offers undervalued the company and that it already had a growth plan in place. Icahn also tried to replace the board of directors with his own nominees, but withdrew in September after deciding that many shareholders would not support his nominees.

Icahn remains the company's largest shareholder, according to data compiled by FactSet.

On the call with analysts, CEO Don Knauss said he doesn't know "what Carl plans on doing."

"But so far, it's been certainly a good relationship and I don't expect that to change," he said.

Shares fell 86 cents, or 1.3 percent, to close at $65.03.