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Rating Action:

Moody's assigns Baa1 rating to Clorox's USD bonds; outlook stable

05 May 2020

New York, May 05, 2020 -- Moody's Investors Service, ("Moody's") today assigned a Baa1 rating to $500 million of senior unsecured notes being offered by The Clorox Company (Clorox). Net proceeds will be used to repay borrowings under the company's revolving credit agreement, with the remainder being used for general corporate purposes. Clorox's existing ratings including the Baa1 senior unsecured and Prime-2 commercial paper ratings are not affected and the rating outlook is stable.

Ratings assigned:

The Clorox Company

$500 million senior unsecured notes due 2030 at Baa1.

RATINGS RATIONALE

Clorox's Baa1 senior unsecured rating reflects the company's good market position in most of its product categories, strong brand name recognition and solid product innovation, all of which gives rise to steady operating earnings and cash flow. Moody's also recognizes the company's commitment to maintaining a moderate financial leverage profile. These strengths are partially offset by the need to continually launch new products with associated marketing and trade promotion support. The company generates a large portion of its revenue from the mature U.S. market and has meaningful customer concentration with the company's top 5 customers generating about 45% of net sales. Clorox is also exposed to volatile raw material and energy prices.

The stable rating outlook reflects Moody's view that Clorox will modestly grow earnings, generate stable cash flow, maintain a moderate leverage profile, and pursue acquisitions over the next 12 to 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be upgraded if the company has a profitable increase in scale and geographic diversity, solid organic growth and cash flow, maintains conservative financial policies, is able to sustain retained cash flow to net debt above 20%, and is able to sustain debt-to-EBITDA leverage below 2.0x.

The ratings could be downgraded if there is a deterioration in operating performance, a shift to more aggressive financial policies, debt to EBITDA is sustained above 3.0x, retained cash flow to net debt is sustained below 15%, or liquidity weakens.

Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The consumer products sector has been one of the sectors affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, potential pressure on Clorox's credit profile, including its exposure to multiple affected countries, could occur because of shifts in market sentiment in these unprecedented operating conditions and the company remains vulnerable to the outbreak continuing to spread. However, many of Clorox's products including cleaning supplies are benefitting from increased demand because of the focus on containing the spread of the coronavirus and organic revenue was up 17% in the fiscal third quarter ending in March. Moody's expects Clorox's revenue and earnings to grow more modestly over the next 12 months because consumer will pull back from actions such as pantry loading, but Moody's projects growth will remain positive. An extended downturn could negatively affect growth and consumer demand because of higher unemployment.

The consumer packaged goods industry has relatively low environmental and social risk. Clorox has various commitments to lessen its overall impact on the environment by making sustainability improvements to its product portfolio, making primary packaging recyclable, eliminating PVC in packaging and APE in retail products, and reducing emissions, among other items. Clorox has an "Eco Strategy" that strives to make responsible products responsibly and shrink the company's environmental footprints as it grows. In terms of social factors, the company has set several goals including enhancing financial literacy of its employees, maintain a recordable incident rate of <1.0 with comprehensive safety management, ensure gender and ethnic pay equity, and achieve gender and ethnic minority representation targets, among other items. Moody's views Clorox's financial policies as conservative. The majority of Clorox's Board members are independent directors, and have extensive consumer product experience. That said the Chairman of the Board is also the CEO. Clorox is a widely held public company.

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Clorox Company, based in Oakland, California, manufactures and markets a diverse portfolio of branded consumer products. Some key products include Clorox Bleach, Clorox cleaning products, Pine-Sol cleaners, Liquid Plumr clog removers, Fresh Step cat litter, Glad bags, wraps, and containers, Kingsford charcoal, Hidden Valley dressings and sauces, Brita water-filtration products, and Burt's Bees natural personal care products. The company also markets brands for professional services including Clorox Healthcare and Clorox Commercial Solutions. Clorox is publicly traded and generates roughly $6.1 billion in annual revenue.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Chedly Louis
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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