Earlier today, Clorox announced that it turned in a strong quarterly performance in the period ending June 30th, 2009 thanks at least in part -- and what we suspect was a very large part -- to cost reduction initiatives. According to the announcement, Clorox's earnings increased 8% from the previous time period 12 months ago to $170 million for the quarter, mostly due to "price increases, significant cost savings and lower commodity costs". In other words, two out of the three drivers of this successful financial whitewashing were due to Spend Management related initiatives and results.
Specifically, "Gross margin increased 370 basis points to 45.8 percent from 42.1 percent. The year-over-year increase was due to the continuing benefit of price increases, and the benefits of strong cost savings and lower commodity costs, partially offset by the impact of higher manufacturing and logistics costs and foreign currency transaction losses." While lower commodity costs are certainly not sustainable going forward, it's clear Clorox is taking serious actions to improve the quality of its overall cost reduction and supply chain performance.
Our own benchmark analysis of Clorox relative to other CPG peers suggests that Clorox has made great strides of late in improving the quality of its procurement and supply chain operations. In fact, until recently, we ranked Clorox at the bottom of the household and personal products heap in a number of client analyses related to overall procurement, supply chain and IT sophistication. Within this sector, Gillette and Procter & Gamble have typically outperformed their peers (with Avon Products, Colgate-Palmolive, Kimberly-Clark and SC JohnsonWax following close behind). But word on the street is that Clorox has been upgrading their sourcing and supply management talent pool in recent years. And without a doubt, these efforts are paying off, making the earnings laundry brighter than ever.