5 ways Clorox explains the economy

People are leaving pandemic habits behind.

Demand for cleaning products exploded with the onset of COVID and the variants that followed. Now that's starting to wane. At Clorox, that means sales growth is moderating along with it. Remember when everyone stocked up on wipes? That era is ending. As leaders pointed out, there hasn't been a typical cold and flu season in two years, either. They'll be monitoring consumer demand as fall brings that dynamic into the mix, as well.

One question going forward: Did the pandemic cleaning routines change behavior for the long haul?

"We're still seeing people care about cleaning and disinfecting elevated, but definitely lower than it was at the height of the pandemic, but higher than it was pre-COVID," CEO Linda Rendle said. "So what we're trying to gauge is when does that new consumption pattern align to that desire from consumers who have a heightened state of awareness of cleaning and disinfecting and get into a more normalized routine."

Inflation is driving up costs for companies.

Rendle gave the state of play at the outset of the call: 2022 is bringing "a very challenging operating environment." Fuel, transportation and raw material costs are challenging companies. Clorox expects to incur $400 million in costs as a result of supply chain expenses and other cost inflation. And this comes after it ended some third-party contracts to save money. But it does see commodity prices starting to come back down in future months, further into 2023.

Consumer prices are going up, too...

Clorox has raised prices three times in recent months. Its most recent and largest hike was in July. It's too early to see the results of that yet, but it is watching the response closely. Changes to packaging size could follow to adjust as people look to save money.

Will it bring a shift to store brands?

Will consumers trade name brands for store brands to save money? That's a big question right now in retail. Clorox is not seeing this happen with its brands when it comes to switching for private label. Rather, customers are opting for different sizes to get better prices.

"They still want the branded player but they...don't have a lot of out of pocket and so they're buying a smaller size," Rendle said. "We're also seeing consumers trade up to larger sizes to get the very best price per ounce. And we're working with retailers to ensure our assortment is right to capture that. We've seen that in other times of inflation and recession and so we've been proactive about addressing that with our retailer partners to ensure that we have the right distribution."

There's more uncertainty ahead.

Sometimes, the way the numbers are presented says a lot. The company's outlook for 2023 offered a wider range than usual, reflecting a market of "heightened volatility." This time of swings is going to continue, but the company is trying to preserve and build back margins in the meantime. It's rolling out a new operational structure for efficiency, for one. Pricing and supply chain changes are in that mix, as well.

"We're pulling every lever available to us," said CFO Kevin Jacobsen.