CLX 10-K & 10-Q changes, risk factors and insider trading

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which was filed with the SEC on August 8, 2025, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three and sixnine month period ended DecemberMarch 31, 20252026 (the current period) to the three and sixnine month period ended DecemberMarch 31, 20242025 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.

For the fiscal quarter ended DecemberMarch 31, 2025,2026, the Company continues to monitor macroeconomic conditions as a result of volatility in capital markets and developments in international trade policy. These evolving challenges contributed to a highly dynamic operating environment as the Company continued its efforts to drive growth, rebuild margins and drive its transformation.

While inflationary headwinds have moderated, consumersConsumers continue to feel pressure as continued macroeconomic uncertainty impacts spending and prices remain elevated. United States trade policies continue to evolve, including new or increased tariffs on product imports from certain countries. These, and any future new or additional tariffs, as well as any associated retaliatory measures taken by other countries, may impact the macroeconomic environment, consumers, suppliers and the Company’s business. Though the Company has and will continue to take action to mitigate such impacts, the Company anticipates that the operating environment will remain volatile and challenging.

The impact of continued volatility inGlobal macroeconomic conditions remain volatile and geopolitical instability,instability includingpersists. This includes active military hostilities in the Middle East, specifically the ongoing andconflict involving Iran, rising tensions in variousother partsregions, ofas thewell world,as actual and potential shifts in U.S. and foreign trade, economic and other policies, including the imposition of sanctions. These developments have increased global macroeconomic and political uncertainty regarding the duration and resolution of the conflicts, the potential escalation of tensionsconflicts, andas potentialwell as the risk of economic anddisruptions that could impact global trade and supply chainchains. disruptions. These factors are difficult to predict consideringGiven the rapidlydynamic evolvingnature landscapeof asthese conditions, the Company continuesexpects tocontinued expectvariability ain variablethe operating environment going forward.environment.

The Company has not experienced significant disruptions into its regional operations and global supply chain or significant cost increases during the first half of fiscal year 2026.2026 to date due to the ongoing conflict involving Iran. However, the risks of future negative impacts from regional conflicts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present, and the Company continuesexpects to experience corresponding incremental costs and gross margin pressures.pressures in future periods.

The Company's transformation efforts continued into fiscal year 2026. The Company has continued transitioning core U.S. operations to the new enterprise resource planning system (ERP) as part of the continuing phased implementation of its technology transformation. The Company remains in the stabilization phase and iscompleted on track to completeits implementation thisin the third quarter of fiscal year.year 2026. The total incremental transformational investment is expected to bewas approximately $580 million. The digital foundation provided by the Company’s new ERP supports its long-term financial goals through modernized capabilities that accelerate growth and deliver stronger efficiencies.

The Company will continue to invest in its brands, capabilities and people to deliver consistent, profitable growth over time. The pending acquisition of GOJO IndustriesIndustries, announcedInc. (GOJO), which closed on JanuaryApril 22,1, 20262026, and upcomingthe completed purchase of The Procter & Gamble Company’s (P&G) interest in the venture agreement for the Company’s Glad bags and wraps business (the Venture Agreement) on March 2, 2026 reflect the Company’s commitmentintent to continue evolving its portfolio to deliver long‑term value for shareholders.

(1)The divestiture impact is calculated as net sales from the Better Health VMS business after the sale date in the sixnine month year-ago period.

(2)This represents the net impact on net sales growth / (decrease) from pricing actions, mix, trade promotion spending, mix from acquisitions and divestitures and other factors. In the sixnine months ended DecemberMarch 31, 2025,2026, the impact from divestiture mix was 0% for Total Company.

(4)Organic volume represents volume excluding the effect of any acquisitions and divestitures. In the sixnine months ended DecemberMarch 31, 2025,2026, the volume impact of divestitures was (1)% for Total Company.

Net sales and volume in the current three month period were both decreasedessentially by 1%, primarily driven by lower consumption and partially offset by shipments ahead of consumption for several businesses.flat.

Net sales and volume in the current sixnine month period decreased by 10%7% and 9%,6%, respectively, primarily due to lower shipments in the current period following the incremental shipments related to the ERP transition in the fourth quarter of fiscal year 2025, and the divestiture of the Better Health VMS business.2025.

Gross margin decreased by 60140 basis points in the current three month period from 43.8%44.6% to 43.2%. The decrease was primarily driven by higher manufacturing and logistics costs,costs and unfavorable mix, partially offset by cost savings.

Gross margin decreased by 230200 basis points in the current sixnine month period from 44.8%44.7% to 42.5%.42.7%. The decrease was primarily driven by higher manufacturing and logistics costs and lower volume, partially offset by cost savings.

Selling and administrative expenses, as a percentage of net sales, decreased by 90230 basis points and increased by 11010 basis points in the current three and sixnine month periods, respectively, while dollars decreased in bothversus the current three and six monthprior periods. The dollar decrease in selling and administrative expenses in both the current three and nine month periodperiods was primarily due to lower costs related to the Company’s digital capabilities and productivity enhancements investment and lower incentive compensation. The dollar decrease in selling and administrative expenses in the current six month period was primarily due to lower incentive compensation.

Advertising costs, as a percentage of net sales, increaseddecreased by 10180 basis points and 50 basis points in both the current three and sixnine month periods, respectively, versus the prior periods. The Company continues to support its brands. The Company’s U.S. retail advertising investments as a percentage of net sales wasdecreased 12%from 14% to 11% in both the current and prior three month periods.period.

Research and development costs, both as a percentage of net sales and dollars, were essentially flat in both the current three and sixnine month periods as compared to prior periods. The Company continues to invest in product innovation and cost savings.

Loss on divestiture of $118 in the prior sixnine month period reflects the loss on the divestiture of the Better Health VMS business. See notes to condensed consolidated financial statements for further information.

Other (income) expense, net was $1$6 and ($23$34) in the current and prior three month periods, respectively, and ($4)$2 and ($45$79) in the current and prior sixnine month periods, respectively. The variance between both the current and prior three and sixnine month periods was primarily due to lapping the benefit of insurance recoveries mainly related to the cyberattack in fiscal year 2024.

Diluted net earnings per share (EPS) decreasedincreased by $0.25,$0.04, or 16%,3%, in the current three month period, primarily due to cost savings and lower selling and administrative expenses, partially offset by higher manufacturing and logistics costs in the current period and lapping insurance recoveries and tax rate benefits in the prior period and lower gross profit in the current period.

Diluted EPS decreased by $0.41,$0.37, or 18%,10%, in the current sixnine month period, primarily due to lower net sales and higher manufacturing and logistics costs in the current period and lapping insurance recoveries in the prior period, partially offset by lapping losses on the divestiture of the Better Health VMS business in the prior period and higher cost savings in the current period.

SEGMENT RESULTS (Continued) (1)See “Non-GAAP Financial Measures” below for reconciliation of segment adjusted EBIT to earnings before income taxes, the most directly comparable GAAP financial measure.

Volume, net sales, and segment adjusted EBIT increased by 2%, 7%,8%, and 48%,16%, respectively, during the current three month period. The volume increase was primarily driven by strong shipments in Latin America.Asia. The variance between volume and net sales was mainly due to favorable price mix and favorable foreign exchange rates. The increase in segment adjusted EBIT was primarily due to higher net sales and cost savings.savings, partially offset by higher manufacturing and logistics costs.

Volume was essentially flat,and net sales increased by 3%1% and 5%, respectively, and segment adjusted EBIT decreased by 11%1% in the current sixnine month period. The variance between volume and net sales was mainly due to favorable priceforeign mixexchange rates and favorable foreignprice exchange rates.mix. The decrease in segment adjusted EBIT was primarily due to higher manufacturing and logistics costs, partially offset by higher net sales.sales and cost savings.

Net sales decreased by 100%108% in the current sixnine month period primarily due to the divestiture of the Better Health VMS business in the first quarter of fiscal year 2025.

Segment adjusted EBIT increased by 20%42% and 22%28% in the current three month and sixnine month periods, respectively. The increase in segment adjusted EBIT in the current three month period was primarily due to reductionsdecreases in employee relatedemployee-related expenses primarily due to lower employee incentive compensation. The increase in segment adjusted EBIT in the current sixnine month period was primarily due to reductionsdecreases in employee relatedemployee-related expenses primarily due to lower employee incentive compensation and lower Better Health VMS operating expenses in the current period due to the divestiture.

The Company’s financial condition and liquidity remained strong as of DecemberMarch 31, 2025.2026. The following table summarizes cash activities:

Net cash provided by operations was $404$282 in the current sixnine month period, compared with $401$687 in the prior sixnine month period. The increasedecrease was primarily driven by the Venture Agreement termination payment of $476 and lower cash earnings offset by lower working capital and lower tax payments offset by lower cash earnings in the current sixnine month period. The lower cash earnings, lower Accounts receivable balance andin highercurrent inventoriesperiod balance werewas primarily due to the incremental shipments related to the ERP transition in the fourth quarter of fiscal year 2025. The higher Accounts payable and accrued liabilities balance was due to the timing of payments. The lower tax payments were a result of the enactment of the One Big Beautiful Bill Act (OBBBA).

Net cash used for investing activities was $77$120 in the current sixnine month period, compared with net cash proceeds of $35$18 in the prior sixnine month period. The year-over-year change was mainly due to net proceeds from the sale of the Better Health VMS business in the prior sixnine month period.

Net cash usedprovided forby financing activities was $269$857 in the current sixnine month period, compared with $346net cash used of $645 in the prior sixnine month period. The year-over-year change was mainly due to higher cash sourced from short term borrowings, partially offset by lower cash proceeds from stock option exercisesborrowings in the current sixnine month period.

The Company’s ventureVenture agreement with P&G for the Company’s Glad bags and wraps businessAgreement expired on January 31, 2026. The agreement, at its expiration, required the Company to purchase P&G’s 20% interest for cash at fair value as established by predetermined valuation procedures. As of both December 31, 2025 and June 30, 2025, P&G had a 20% interest in the venture, and the estimated fair value of P&G’s interest in the venture was $476, of which $476 and $501, respectively,$501 was recognized and reflected in Accounts payable and accrued liabilities in the Company’s condensed consolidated balance sheet.

On January 31, 2026, the Company and P&G agreed that the Company willwould purchase P&G’s 20% interest for $476,interest, which is expected to bewas paid in cash for $476 duringon theMarch third quarter of fiscal year2, 2026.

AsThere were no borrowings under the Revolving Credit Agreements and the Delayed Draw Term Credit Agreement as of DecemberMarch 31, 2025,2026 and no borrowings under the Company maintained a $1,200 revolving credit agreement that matures in March 2030 (the Credit Agreement). There were no borrowings under the Credit Agreement as of both December 31, 2025 and June 30, 2025, and the Company believes that borrowings under the Revolving Credit Agreements and the Delayed Term Credit Agreement are and will continue to be available for generalthe corporatepurposes purposes.stated in each agreement. The Revolving Credit Agreements and the Delayed Term Credit Agreement includesinclude certain restrictive covenants and limitations. The primary restrictive covenant is a minimum ratio of 4.0, calculated as total earnings before interest, taxes, depreciation and amortization and other similar noncash charges and certain other items (Consolidated EBITDA) to total interest expense for the trailing four quarters (Interest Coverage ratio), as defined and described in theeach Credit Agreement.agreement.

The Company was in compliance with all restrictive covenants and limitations in the Revolving Credit Agreements and Delayed Draw Term Credit Agreement as of DecemberMarch 31, 20252026 and anticipates being in compliance with all restrictive covenants for the foreseeable future.

As of DecemberMarch 31, 2025,2026, the Company maintained $34$35 of foreign and other credit lines, of which $6$8 was outstanding.

As of DecemberMarch 31, 2025,2026, the Company had two stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no authorization limit on the dollar amount and no expiration date. During the three and sixnine months ended DecemberMarch 31, 2025,2026, the Company repurchased 1,1090 and 2,157 thousand shares of common stock at a cost of $125$0 and $254, respectively. During the three and sixnine months ended DecemberMarch 31, 2024,2025, the Company repurchased 9060 and 1,695 thousand shares of common stock at a cost of $150$0 and $257, respectively. These costs exclude the impact of excise taxes.

Adjusted earnings before interest and income taxes (adjusted EBIT) represents earnings (losses) before income taxes excluding interest income, interest expense and other significant items that are nonrecurring or unusual (such as the pension settlement charge, incremental costs and insurance recoveries related to the August 2023 cyberattack, asset impairments, charges related to NON-GAAP FINANCIAL MEASURES (Continued) the digital capabilities and productivity enhancements investment, acquisition and integration costs related to acquisitions, significant losses related to divestitures and other nonrecurring or unusual items impacting comparability). Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations. See below and notes to condensed consolidated financial statements for additional information on these costs.