Clorox (CLX) Upgrade 10.6.09

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Equity Research

Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 3 AND IMPORTANT DISCLOSURES BEGINNINGON PAGE 4

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October 06, 2009

Clorox Company

(CLX - US$ 57.60) 2-Equal Weight

Change of Price Target

Raising Price Target

Investment Conclusion

Our Price Target on CLX shares is now $67, whichreflects a 15.5x multiple (a 5% premium to wherethe S&P 500 is currently trading) on our calendar 2010 GAAP EPS estimate of $4.32. Our previous

PT of $59 implied an 13.5x multiple on the same2010 EPS estimate.

Summary

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This morning, the Barclays Capital Consumer Team published its 3Q09 Earnings Preview.

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Please see our "3Q09 'All-Consumer' EPSPreview" for more on our expectations headinginto 3Q09 for the entire staples universe(Household & Personal Care, Beverage &Tobacco, and Packaged Food).

United States of AmericaConsumer Cosmetics; Household & Personal Care

Reuters CLXBloomberg CLXADR

EPS (US$)

(FY Jun)

2009 2010 2011 % Change

ActualOld New St. Est.Old New St. Est.2010 20111Q

0.91A 0.96E 0.96E 0.95E N/A N/A 1.08E 5% N/A

2Q

0.62A 0.64E 0.64E 0.70E N/A N/A 0.78E 3% N/A

3Q

1.08A 1.19E 1.19E 1.18E N/A N/A 1.28E 10% N/A

4Q

1.20A 1.37E 1.37E 1.36E N/A N/A 1.46E 14% N/A

Year

3.81A 4.15E 4.15E 4.18E 4.56E 4.56E 4.61E 9% 10%

P/E

13.9 12.6

Market Data

Market Cap (Mil.) 8138Dividend Yield 3.2852 Week Range 64.00 - 45.67

Financial Summary

Revenue TTM (Mil.) 5450.0

Stock Overview

CLOROX COMPANY - 10/ 5/ 2009

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oc

Source: LehmanLive

4650545862Volume02M4M

Stock Rating Target Price

New: 2-Equal Weight New: US$ 67.00Old: 2-Equal Weight Old: US$ 59.00

Sector View:

1-Positive

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Equity Research

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11/02/09: The Clorox Company

Current Fiscal Quarter: 1Q10

TickerCLX

EPS OutlookBCConsensusComments

Last Price$56.87Sept 08A$0.91$0.91Stock Rating2-Equal WeightSept 09E$0.96$0.95Sector Rating1-PositiveYoY % Change5%4%Favorites List-Reporting Date11/02/09FY09A$3.81$3.81Reporting TimeBMO FY10E$4.15$4.18Conf. Call Time1:30 PM ETYoY % Change9%10%Dial-In (US)-Passcode

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FY11E$4.56$4.61Websitewww.cloroxcompany.comYoY % Change10%10%

Source: Company Documents, Barclays Capital Estimates, Reuters, and FirstCall

Our $0.96 estimate of F1Q10 GAAP EPS is a penny ahead of the Street; it includes $0.03/share of restructuring charges. At the top line, our assumption of +1% organic growth on the top line incorporates a hint of caution, in part because the company faces its toughest comp of FY10 (+8%). While F1Q10 should be Clorox’s second quarter of above-trend advertising spending, we think consumers are still reluctant torevert to pre-recession spending habits (a view supported by Nielsen data covering many of Clorox’s categories). Secondarily, during F1Q,the company is lapping its last major wave of price increases, implemented on Home Care, Laundry and Cat Litter in August 2008.Technically, elasticity should no longer inhibit volume growth in these businesses (as it surely has for the past 4 quarters), however we donot expect the volume rebound to fully offset deceleration in price/mix. The story in each segment is broadly similar to that of the companyas a whole. Specifically, we are looking for organic sales deceleration in Cleaning (to -1.5%), Household (to +0.5%), Lifestyle (to +2%) andInternational (to -2.5%). Cleaning is the one segment where our assumptions may prove overly bearish, depending on the impact of SwineFlu. In F4Q, strength in Disinfecting Wipes added a full point to total company sales, and with back-to-school coinciding with thereemergence of Swine Flu during F1Q, the impact this quarter could be even bigger.We are expecting another quarter of strong gross margin expansion, driven by commodity cost deflation (+210 bps), cost savings (+140bps), and carryover pricing (+125 bps). We think these positives will be partially offset by higher logistics and manufacturing costs (-125bps), higher trade promotions (-75 bps) and negative mix/other (-115 bps). On a continuing basis this translates into 160 bps of grossmargin expansion, however with lower restructuring charges YoY, we expect Clorox to report more than 190 bps of all-in gross marginexpansion.Turning to guidance, we’re not expecting changes to Clorox’s earnings outlook for the fiscal year. That said, there may be less wiggle roomin the $4.00-4.15 guidance range. Most obviously, while $90-100 million started off as a conservative cost deflation estimate, it now looks asthough deflation will fall short of that range. Secondarily, it is still early in the fiscal year and we already know that the one point of higher trade spend set aside to address competitive battlegrounds will be needed to support Stain Removers (following P&G's launch of Tide StainRemover), Trash Bags, and Cat Litter.

What to do with the stock.

Clorox’s current -10% discount to the CHPC group is not easy to reconcile with the relatively robust high singledigit earnings growth we expect this year, however it makes more sense to us considering the lack of visibility into an eventual volumerecovery. In order to get more constructive on the stock from a fundamental perspective, we would need to see more than just significantgross margin expansion; specifically, we would need to see Clorox capitalize on that flexibility to jump-start volume and market sharetrends.

Equity Research

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Analyst Certification:

I, Lauren R. Lieberman, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

Company Description:

The Clorox Company (Ticker - CLX), with roughly $5 billion sales, is a leading manufacturer and marketer of consumer products. Thecompany's well-known brands include Clorox, Tilex, Formula 409 in the bleach and cleaning products categories; Armor All and STP autocare; Fresh Step and Scoop Away in cat litter; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; Brita water-filtration systems; and Glad bags, wraps, and containers. The company generates approximately 85% of its sales from North America andthe remainder from Latin America and developed markets in Asia.

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