Clorox Now Expects Earnings Near the Low End of Its Forecast as Costs Rise. Should Dividend Investors Be Worried?

Clorox (NYSE:CLX) published its first-quarter fiscal 2027 results after market close on Monday. At first glance, the company's growth rates looked enormously impressive. A closer read of the numbers reveals its performance wasn't so sparkling.

This dynamic raises a big question, particularly for income investors of this high-yield dividend payer: is Clorox a buy, given how it did in the quarter?

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Looking good on paper, but...

Clorox's quarterly net sales leaped 33% higher year over year to nearly $1.91 billion. Much of this was due to its acquisition of Gojo Industries, the maker of Purell sanitizing products. The Gojo deal was announced in January of this year and closed in April. As Gojo began to be included in Clorox's results in the fourth quarter of 2026, this skewed the year-over-year comparison in the most recently reported frame.

Another factor was the timing of Clorox's latest enterprise resource planning (ERP) software upgrade, implemented in the first quarter of fiscal 2026. Cutting a long story short, this reduced sales that quarter, resulting in a low basis for year-over-year comparisons in the latest set of results.

Those two factors alone accounted for almost the entire 33% growth rate.

Clorox's attributable non-GAAP (adjusted) net income was $190 million. That shook out to $1.55 per share, which, again, was quite the improvement over the year-ago figure ($0.85). That "lapping" of the ERP transition and the Gojo absorption were major factors here too.

The consensus analyst estimates were $1.88 billion for net sales and $1.07 for adjusted earnings per share (EPS). But the company's beats didn't impress investors who had done their homework, as they traded the shares down slightly in after-hours action following the earnings release.

The lapping effect

Lapping's impact was apparent in the performance of three of Clorox's four reporting segments.

That applies to health and wellness' 62% surge to $918 million. This is the unit where Gojo has been placed, and its presence contributed 39 percentage points to growth. The remainder came from the ERP transition.

Gojo didn't have any impact on the household unit, which saw a 17% rise in net sales to $423 million. This was "primarily" driven by lapping, as was the 16% jump for the lifestyle division (to $283 million).

Neither lapping nor Gojo (basically a product for the North American market) had much of an effect on the international segment, which posted an 11% increase to $281 million.

The company reiterated most of its annual guidance for fiscal 2027. Its net sales growth forecast remains at 13% to 14% (once more, much of this should be due to Gojo and lapping). The adjusted EPS forecast of $5.70 to $6 per share was maintained; however, the company now expects the actual figure to land closer to the bottom end of that range. It also slightly reduced its expectation for gross margin to 41.5% from 42%.

The deal with the dividend

Clorox's long-term debt rose by 60% year over year to almost $4 billion. No prizes for guessing why; yes, it was the Gojo acquisition, an all-cash transaction with a price tag of $2.25 billion, or roughly $1.92 billion when factoring in anticipated tax benefits. This was funded through new debt instruments, raising interest expense to $52 million from $23 million.

I feel the Gojo deal is an attempt by Clorox to buy a way out of its recent slump. Several negative factors, such as higher commodity costs and increased transportation expenses stemming largely from the Middle East conflict, have affected the company. Meanwhile, consumer budgets are being stretched by higher prices across a wide range of goods.

This has sapped Clorox's share price, with one positive effect being that its dividend has been lifted well into high-yield dividend territory, at 5.6%. And this is a payout that's been raised for 49 years in a row, putting the company at the brink of achieving the rare Dividend King status -- which a stock reaches when the count hits 50.

If Clorox fell short, it would be devastating for investor morale. I don't think that'll happen, and not only because the stakes are high. In the first-quarter earnings release, Clorox revealed that operating cash flow zoomed 54% higher and, while much of that was due to lapping (of course), that shows it can still generate plenty of greenbacks to fund continued dividend raises. Its payout ratio remains high, though, so all investors should keep a watchful eye on that figure. The lofty payout ratio is likely why Clorox's hikes over the last few years have been incremental and thus easy on its cash balance.

Given all that, I predict the company will earn Dividend King status when raise time comes around in 2027. Clorox has its challenges for sure, but if I were a dividend investor, I wouldn't be overly worried.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.