Clorox’s (NYSE:CLX) Efficiency Gains and ROCE Surge: A Compelling Long-Term Investment?

The Clorox Company (NYSE:CLX) has emerged as a standout performer in the household products sector, driven by a dramatic improvement in returns on capital employed (ROCE) and margin expansion. After years of modest efficiency gains, the company’s ROCE surged to 43.1% in fiscal 2025, far outpacing its five-year average of 24.1% and the industry median of 4.9% [1]. This leap in profitability, coupled with a disciplined capital allocation strategy, raises the question: Is Clorox now a compelling long-term investment?

ROCE Surge and Capital Efficiency

Clorox’s ROCE growth is rooted in a combination of cost discipline and strategic divestitures. In fiscal 2024, the company’s gross margin expanded by 380 basis points to 46.5%, driven by lower manufacturing and logistics costs, favorable commodity prices, and cost savings initiatives [2]. By 2025, this momentum accelerated, with gross margin reaching 45.2% as the company exited low-margin operations like its Argentina and VMS (Vitamins, Minerals, and Supplements) businesses [3]. These moves reduced capital employed—a key denominator in ROCE calculations—by trimming total assets from $5.945 billion in 2023 to $5.561 billion in 2025 [4].

The capital base decline, however, is not without risks. Total assets have fallen by 3.3% year-over-year in 2025 alone, reflecting a broader trend of asset reduction since 2020 [5]. While this shrinkage has amplified ROCE, it also limits the company’s ability to reinvest in growth opportunities. Clorox’s capital employed (total assets minus current liabilities) stood at $4.2 billion in 2024 but dropped to $3.987 billion by 2025 [6]. This contraction suggests the company is prioritizing efficiency over scale, a strategy that could backfire if market conditions shift.

Margin Expansion and Dividend Sustainability

Clorox’s margin expansion has been a key driver of its valuation appeal. Adjusted earnings per share (EPS) grew by 9% in 2024 and surged 58% in Q4 2025, fueled by higher volume and cost savings [7]. The company’s net margin of 11.4% in 2025 outperformed Church & Dwight’s 8.66%, underscoring its pricing power [8]. However, this margin strength has not translated into robust revenue growth. Net sales declined by 4% in 2024 and stagnated in 2025, with the Lifestyle and International segments underperforming [9].

Despite top-line challenges, Clorox has maintained a Dividend Aristocrat status, with a 4.15% yield and a 74.3% payout ratio [10]. While this high payout ratio is sustainable given the company’s strong ROCE, it leaves little room for reinvestment or unexpected shocks. The dividend’s consistency—49 consecutive years of growth—adds to its allure, but investors must weigh this against the risk of over-reliance on a shrinking capital base.

Valuation and Industry Position

Clorox’s valuation appears attractive relative to its peers. A P/E ratio of 18.54 in 2025 is significantly lower than Church & Dwight’s 43.26, while its P/FCF ratio of 18.96 suggests reasonable value for its free cash flow [11]. The company’s ROE of 377.86% in 2025, though volatile, highlights its ability to generate outsized returns on equity [12]. However, these metrics must be contextualized against the industry’s 2025 ROCE benchmark of 37.87% [13]. Clorox’s 43.1% ROCE places it above this threshold, but the gap is narrowing as competitors adopt similar efficiency strategies.

Risks and Outlook

The primary risks to Clorox’s long-term prospects include its reliance on margin expansion and a shrinking capital base. Free cash flow contracted by 48% in 2024, and while the company projects a return to volume growth in 2026, this remains unproven [14]. Additionally, the high payout ratio (74.3%) could strain the dividend if margins falter.

Yet, Clorox’s strategic focus on core segments like Health and Wellness—where adjusted EBIT grew by 15% in 2024—suggests a path to sustainable growth [15]. The company’s ability to reinvest savings from cost-cutting into higher-margin products could further bolster ROCE.

Conclusion

Clorox’s efficiency gains and ROCE surge make it a compelling long-term investment for patient capital. Its valuation metrics, while modest, reflect a company that has mastered cost discipline and capital allocation. However, investors must remain cautious about the risks of a shrinking capital base and high payout ratio. For those who can tolerate these trade-offs, Clorox offers a rare combination of strong returns and a resilient dividend, positioning it as a standout in the household products sector.

Source:
[1] The Clorox Company (CLX) Return on Capital Employed (ROCE) comparison analysis [https://valuesense.io/ticker/clx/roce]
[2] Clorox Reports Q4 and FY24 Results, Provides FY25 Outlook [https://investors.thecloroxcompany.com/news/news-details/2024/Clorox-Reports-Q4-and-FY24-Results-Provides-FY25-Outlook/default.aspx]
[3] Clorox Reports Q4 and FY25 Results, Provides FY26 Outlook [https://investors.thecloroxcompany.com/news/news-details/2025/Clorox-Reports-Q4-and-FY25-Results-Provides-FY26-Outlook/default.aspx]
[4] Clorox Total Assets 2010-2025 | CLX [https://macrotrends.net/stocks/charts/CLX/clorox/total-assets]
[5] Clorox (NYSE:CLX) Is Finding It Tricky To Allocate Its Capital [https://finance.yahoo.com/news/clorox-nyse-clx-finding-tricky-123421603.html]
[6] Clorox (CLX) Balance Sheet & Financial Health Metrics [https://simplywall.st/stocks/us/household/nyse-clx/clorox/health]
[7] Clorox Revenue 2010-2025 | CLX [https://www.macrotrends.net/stocks/charts/CLX/clorox/revenue]
[8] Clorox (NYSE:CLX) - Stock Analysis [https://simplywall.st/stocks/us/household/nyse-clx/clorox]
[9] Clorox Reports Q3 Fiscal Year 2025 Results, Updates Outlook [https://investors.thecloroxcompany.com/news/news-details/2025/Clorox-Reports-Q3-Fiscal-Year-2025-Results-Updates-Outlook/default.aspx]
[10] The Clorox Company (CLX) Dividend Date & History [https://www.koyfin.com/company/clx/dividends/]
[11] Clorox (NYSE:CLX) Financial Ratios [https://stockanalysis.com/stocks/clx/financials/ratios/]
[12] The Clorox Company - ROE [https://www.wisesheets.io/roe/CLX]
[13] Margin/ ROIC by Sector (US) [https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/mgnroc.html]
[14] Clorox (CLX) Financial Analysis and Margin [https://monexa.ai/blog/the-clorox-company-clx-latest-financials-and-strat-CLX-2025-07-08]
[15] Clorox Reports Q3 Fiscal Year 2024 Results, Updates Outlook [https://investors.thecloroxcompany.com/news/news-details/2024/Clorox-Reports-Q3-Fiscal-Year-2024-Results-Updates-Outlook/default.aspx]