Clorox reported earnings today through their Q4 that ended June 30th, so we got to see the first indicators of consumer shopping through key grilling holidays. Unfortunately, there were significant headwinds for Kingsford. With charcoal sales, Q4 is key because it historically accounts for around 50% of annual revenue.

This year, weather was the main problem around key grilling holidays. There was extreme heat, which has continued into their Q1.

And then as well as Kingsford, maybe I’ll just go ahead and talk about the season for Kingsford right now. I think that would be helpful. So if you look at the category from a Grilling perspective, across all fuel types, including pellets for the first time, the category declined, and this was largely and mostly due to weather-related issues on major holidays. So Memorial Day was unseasonably chilly and wet across most of the U.S. And then for July 4, 185 million Americans were under heat advisory and almost 150 daily city temperature highs were broken during July 4 weekend. So we saw less growing behavior from consumers, and that significantly impacted the category.

Linda Rendle, CEO of Clorox

Weather wasn’t the only headwind impact fuel sales this summer. The economy has been consistent, but consistently tough. It’s caused consumers at all incomes to value shop.

The consumer environment remains challenging, with households continuing to navigate the cumulative
effects of several years of inflation and economic uncertainty. As a result, value-seeking behaviors remain elevated and consumers are making increasingly deliberate purchasing decisions.

We continue to see consumers balancing affordability, convenience and product performance, often making trade-offs across sizes, channels and occasions. While these pressures are most pronounced among lower-income consumers, value-seeking behaviors remain widespread across the marketplace.

At the same time, consumers are resilient, and we see clear room for growth as consumers continue to
spend on brands that deliver compelling value, trusted performance and superior experiences. This consumer resilience has supported category growth at the upper end of our expectations in recent months, albeit below historical norms, even as inflationary pressures continue to influence purchasingdecisions.

Linda Rendle, CEO of Clorox

The consumer value seeking behavior was pronounced in Kingsford. It influenced retailer merchandising decisions that Clorox hadn’t planned for ahead of time.

In addition, retailers made some choices on merchandising to go after value shopping consumers and put smaller sizes on deal. We’ll correct that next year because it’s actually better to load consumers earlier in the season. And so that was a learning, and we won’t repeat that next year. So that is what you’re seeing in the category and share results for Kingsford, but we would expect that to also improve as we head into season year ’27 that will start in March of next year.

Linda Rendle, CEO of Clorox

Inflation

High inflation is an issue that companies and consumers have been dealing since Covid. From Clorox’s guidance, they don’t expect inflation to slow down in the near term.

So we expect fiscal year ’27 inflation to be above $200 million. So for perspective, it’s about more than double our historical range, which has been in the $75 million to $100 million. Now clearly, the current geopolitical backdrop continues to create volatility across energy, commodity and supply chain markets. So our outlook assume an average for Brent crude oil at about $90 per barrel.

But importantly, it’s not just energy or commodity stories. While commodities remain a significant driver, we are also seeing inflation across broader areas of supply chain, including supplier cost, ocean freight, trucking costs and other logistic-related expenses. So as a result, it’s fair to say that inflationary pressures are proving more persistent and should extend well beyond what is just reflected in the headline for the oil price. The last thing I would mention is there’s a dynamic from a timing standpoint. We expect the impact of the inflation to be more pronounced in the first half of fiscal year ’27.

Luc Bellet, CFO of Clorox

Where inflation gets tricky on the go-forward is consumers are stretched thin. Companies have been taking price for years, consumers are value-seeking, so I’m not sure how much meat is left on the bone on the pricing front.

So I don’t view a structural issue on pricing over the long term in our categories. We see consumers to continue to accept pricing and better innovation that we price for with better experiences. And that’s playing out in many of our categories today. I think I’ll speak for Clorox only. What we view is a unique period of time where we have near back-to-back inflation cycles off of a record-setting inflation cycle back in ’22 and ’23, where we experienced costs at a level 10x higher than what we had normally experienced, and we took 4 rounds of pretty substantial pricing across our categories.

And it turned out that the elasticities in that pricing were a bit better than we had expected. But now as consumers come under pressure, you can kind of see little places where we’ve had to adjust pricing, et cetera. So I think from our perspective, we just look at our toolbox because pricing is only one tool in the toolbox and say that it is best for our categories right now to take targeted pricing, which we are doing. There are places where we are taking a regular price increase. Glad is a good example, given its commodity exposure to resin. We are taking a regular price increasing at that category and have already announced and implemented that pricing. But in other places, we’re being much more targeted.

And we’re using the other tools we have in the toolbox, which we feel confident about, whether that be revenue growth management, price pack architecture, cost savings, and we’ll have another strong year of all of that this year. And we have our confidence ability to do it over the mid- to long term. So I think, Kevin, the point is it’s a unique period where we typically have a bit longer between inflation cycles. I think given the uncertainty and volatility consumers are experiencing, we are just being more targeted in the toolbox, but feel fully confident that these categories can take pricing over time. We’ll continue to do that through innovation.

Again, we’ll take targeted pricing this year where we think it’s warranted, and we’ll take a straight price increase on Glad trash, as you might expect. And I think as we move forward, when we get back to hopefully a more normal set of cycles around inflation, you’ll continue to see pricing be a strong lever for our types of business.

Linda Rendle, CEO of Clorox

Kingsford has some resilience with pricing because of the dominant position it has in the market. Extending that to other product categories in grilling, it becomes tougher.

With grills where it’s more segmented, I think we’ll see some erosion of brand strength as consumers remain pressured, especially in the face of pricing. It may increase the likelihood that value-seeking buyers rely more on feature comparisons than paying more for stronger brands.

Will We See Innovation at Kingsford?

Kingsford promised some innovation this summer, but we haven’t seen it so far that I’m aware of. They had some new bags for America 250, and did some marketing with John Daly, but that’s about it.

There’s not a ton you can do to innovate in the Charcoal category, so I wasn’t expecting anything major. It’s unlikely what they were referencing in the balance of the year though because it wouldn’t yield much of an increase in revenue given the sales cycle. I don’t know if they scrapped it because of the soft sales or if it was something minor that slipped past.

Linda Rendle Stepping Down

Clorox announced at the end of May that their current CEO Linda Rendle would be stepping down from the company. She, unfortunately, was dealing with early-stage breast cancer and the effects from that while running the company. Thankfully she is cancer free now, but she made the decision to leave to spend time with family and focus on her health.

Linda Rendle has been with Clorox for 23 years and has been CEO for six years. She’ll be tough to replace, but she’s remaining on while Clorox searches for a replacement. She’ll also have an advisory role for a time period after her replacement starts.