Stock Market: Clorox’s Pandemic Surge Is Over, But Where Is Pfizer Headed?

In the early days of the pandemic, there was a huge and irrational run on toilet paper. No one ever figured out why, and the manufacturers assured us there was plenty of supply. But people hoarded it anyway. It’s a good thing there’s no best before date on a toilet paper roll; some of those packages are probably still being used today.

There was a more rational run on sanitizing products — wipes, hand sanitizers, bleach, disinfectant sprays, etc. The shelves were bare as people rushed to disinfect everything that came into their homes, from groceries to mail. Suppliers prioritized deliveries to meet the requirements of hospitals, nursing homes, and other front-line workers.

One of the companies to benefit from this surge in demand was The Clorox Company (NYSE: CLX). Despite running its factories around the clock, it couldn’t come close to keeping up with demand. “We put Clorox disinfecting wipes on store shelves every day and find that people scoop them up almost as soon as they’re delivered,” said CEO Benno Dorer in a message posted on the company’s website.

As you might expect in this situation, revenue and profits soared. The stock price went from $153.54 at the end of 2019 (prices in US dollars) to $237.49 on Aug. 7, 2020. We recommended the stock on June 8 of that year at $197.57 in my Internet Wealth Builder newsletter.

Just as everything seemed full steam ahead for Clorox, the medical profession began to raise doubts about the danger of the virus being transmitted by touching doorknobs or pushing elevator buttons. Air-borne droplets were the real problem. Wear masks.

People stopped disinfecting their bananas and milk cartons. We all still used hand sanitizers but perhaps not as rigorously. As more people became vaccinated, the demand for disinfectants dropped. Now you’ll have no problem finding them at the local supermarket.

The impact on Clorox’s business was dramatic. The company’s fourth quarter report for fiscal 2021 (to June 30) showed a 9 per cent year-over-year sales decrease and a 68 per cent decline in diluted net earnings per share.

The company said the sales decrease was due primarily to the deceleration of shipments from peak levels during the COVID-19 pandemic, including more rapid than expected deceleration in the Health and Wellness segment.

Earnings were $97 million ($0.78 per diluted share), compared to $310 million ($2.41 per share) in the year-ago quarter.

“Fiscal year 2021 was an extraordinary year for Clorox, with the pandemic putting us through the test of volatility, including rapid changes in consumer demand and inflationary pressure, which is reflected in our fourth quarter results,” said CEO Linda Rendle.

The outlook going forward isn’t much better. The company is forecasting a sales decline of 2-6 per cent in fiscal 2022, a drop of 4-9 per cent in earnings per share, and a significant decline of 300-400 basis points in gross margin.

The share price is reflecting all this bad news. The stock closed Friday at $170.06. Given the outlook for 2022, it’s not a stock I would continue to hold.

 

Pfizer’s Recent Climb

 

Clorox’s big pandemic gain turned out to be a flash in the pan. Pfizer may be a different story. I first recommended the stock in the Internet Wealth Builder in April 2020 at $38.73, in part because it appeared to be one of the early front-runners in the race to develop a vaccine.

That’s the way it turned out. Pfizer and partner BioNTech were the first to have a COVID-19 vaccine approved for emergency use in the U.S. and their vaccine has proven to be highly effective with minimal side effects.

The stock had been languishing for years, and even after the vaccine was given conditional approval the price barely moved. But it recently broke through the $40 barrier for the first time since June 2019 and briefly crossed the $50 level last week. It is now trading at $48.72. The shares are up 25 per cent since I recommended buying them.

What happened? Pfizer exceeded analysts’ expectations by a wide margin in second quarter revenue and earnings, propelling the stock higher.

The company reported revenue of just under $19 billion in the quarter, up 92 per cent from $9.9 billion in the same period of 2020. Vaccines accounted for $9.2 billion in total revenue.

Adjusted income was just under $6.1 billion, up 75 per cent from $3.5 billion last year. On a diluted per share basis, adjusted earnings were $1.07 compared to $0.62 a year ago. For the first six months of the fiscal year, adjusted income was $11.3 billion ($2 per share), compared to $7 billion ($1.25 per share) in the same period last year.

The company raised its full-year guidance for revenue to a range of $78 to $80 billion and adjusted diluted earnings per share to a range of $3.95 to $4.05.

“The second quarter was remarkable in a number of ways,” said CEO Dr. Albert Bouria. “Most visibly, the speed and efficiency of our efforts with BioNTech to help vaccinate the world against COVID-19 have been unprecedented, with now more than a billion doses of BNT162b2 having been delivered globally. In addition, we are equally proud of the second-quarter performance of our business excluding BNT162b2, which posted 10 per cent operational revenue growth.

“Looking forward, we remain highly confident in our ability to achieve at least a 6 per cent compound annual growth rate through 2025 and intend to build upon our recent successes by continuing to follow the science, trust in our people and remain focused on delivering breakthroughs for the patients we serve.”

Pfizer expects to sell about 2.1 billion doses of its COVID-19 vaccine this year, generating revenue of $33.5 billion. That’s 42.5 per cent of the mid-point of its revenue estimate for the year. But what about 2022 and 2023? Demand will gradually decline as more people are inoculated — unless it turns out the vaccine has a short life span and needs an annual booster. That appears increasingly likely; Israel has advised booster shots for those over age 50 and the Biden Administration recommended a third shot this past week. The implications for the company’s revenue and profits are huge.

In short, this could be another Clorox situation — a temporary spike followed by a return to mediocre results. Or, more likely, it could be just the start of a new growth spurt for Pfizer.

If you own shares, my advice is to maintain your positions. You’re receiving a respectable 3 per cent dividend and there’s more capital gains potential here.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe

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