Fitch Affirms The Clorox Company's IDR at 'BBB+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings affirms The Clorox Company's (Clorox) ratings as follows:

--Long-term Issuer Default Rating (IDR) at 'BBB+';

--Short-term IDR at 'F2';

--$1.1 billion revolving credit facility (RCF) at 'BBB+';

--Senior unsecured notes at 'BBB+';

--Commercial paper (CP) program at 'F2'.

The Rating Outlook is Stable.

Clorox's RCF, $50 million of outstanding CP at Sept. 30, 2014 and approximately $2.2 billion in unsecured senior notes, is affected by this action.

KEY RATING DRIVERS

Low Business Risk:

The Clorox Company's focused strategy of having branded products with large or leading market shares in midsized categories results in a very stable operating performance. Financial performance has been consistent for more than seven years with EBITDA showing little variance at approximately $1.1 billion to $1.3 billion. Fitch expects EBITDA to remain in its historical ranges. SG&A to sales is consistently in the 14% range, an efficient metric in the sector.

Moderate Leverage:

Clorox's commitment to operating with leverage of 2.0x-2.5x is a key support to its rating. The company has been at the low end of its target for much of the past three years and ended at 1.9x at the last 12 months ended Sept. 30, 2014. Clorox's free cash flow (FCF) has averaged $200 million over the past four years and Fitch expects it to remain in this range over the next two years. A stable business model and solid FCF generation provide the flexibility to invest in its operations and comfortably execute moderate discretionary activities within its leverage target. There is room for up to $700 million in additional debt with limited impact to its ratings as long as the current operating profile remains.

Intermittent Input Cost Pressures:

Commodities used in the manufacturing process such as resin can experience periods of price volatility, and pressure margins. Clorox's leadership position has allowed it to adjust prices quickly and, in combination with ongoing cost-savings programs, margin compression has typically been short-term in nature. Given the marked decline in the price of oil of late, Fitch would expect the cost of oil-related commodities such as diesel fuel to become a tailwind to margins in the near term.

Mature Categories:

Clorox's categories span the gamut from household cleaning products such as Tilex to Kingsford charcoal briquettes and Hidden Valley ranch salad dressings. However, given the company's primarily domestic orientation and high household penetration, organic growth rates over the past four years have been less than 3% with about one-third driven by pricing initiatives.

Strong Financial Flexibility:

The company has $1.45 billion in liquidity, comprising primarily its $1.1 billion RCF which matures in 2019 and $455 million in cash at Sept. 30, 2014. Over the past three fiscal years approximately 50% of the company's cash balances were held by non-U.S.-dollar functional currency subsidiaries and the repatriation of some of these cash balances could result in additional tax costs. As such, Fitch views roughly half of Clorox's cash as restricted. Clorox issued a $500 million note in December 2014 to refinance a $575 million note due in January 2015. Excluding this, debt maturities are moderate with a $300 million, 3.55% note due in November 2015 and a $400 million, 5.95% note due in October 2017. These are likely to be refinanced to maintain the company's capital structure.

RATING SENSITIVITIES

Future developments that may, individually or collectively, lead to a positive rating action include:

The company has the financial flexibility to manage its credit metrics at higher levels given stable cash flows. Operating with leverage of less than 2x and management's commitment to staying within that band while maintaining its current business momentum would support upward migration of Clorox's rating. Clorox is currently operating at these levels; however, the company is likely to do bolt-on acquisitions and take other shareholder-friendly measures such that operating with leverage under 2x is not likely to be sustained over the medium term.

Future developments that may, individually or collectively, lead to a negative rating action include:

Downward migration is likely to be triggered by a change in financial strategy to consistently operate with leverage of more than 2.5x. This could occur with a large debt-financed share buyback. A large acquisition could also result in pro forma leverage well above these levels. However, if the company has clear and achievable plans to return to pre-acquisition credit protection measures within an 18-24-month timeframe there could be minimal impact to ratings. None of these actions are expected, since Clorox has proven to be very disciplined as well as committed to maintaining strong ratings.

Additionally, meaningful market share losses in two or more of the Glad, bleach or Kingsford charcoal categories, which collectively represent more than 30% of revenues, would be of concern.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 2014)

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=962715

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