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Karen Finerman: Clorox Facing Headwinds

In the wake of the latest earnings report from Clorox , trader Karen Finerman can’t understand why the company isn’t embracing the offer from Carl Icahn.

”The company is facing strong headwinds, by their own admission, and it’s ironic they’re rejecting Icahn’s bid as very inadequate,” she says.

Finerman is referring to a move made in July, in which Clorox called an $80 per share takeover offer from Icahn, its largest shareholder, inadequate. The bid valued Clorox at $10.66 billion.

Clorox shares on Wednesday afternoon were down 1.4 percent at $69.27, more than $10 below Icahn's July 20 offer and slightly above the stock's closing price of $68.43 back on July 14, the day before Icahn made his first bid of $76.50 public.

The shares have not yet hit even the first offer price, suggesting investors do not anticipate a deal will actually happen.

"The stock is going to sit in here and kind of drift aimlessly until we get some resolution of this matter with Mr. Icahn," says Russo at Edward Jones in a Reuters interview.

”I still think Carl would like to see the company sold to someone else,” adds Finerman, “but a second option is that he owns it.”

The question becomes - what exactly does Icahn see in Clorox.

The company said it planned to raise the price of its signature Clorox bleach by 12 percent, in a move to fight rising material costs that have cut into profits. Besides the bleach price hike, the seven new U.S. price increases include mid-to-high single-digit percentage increases on Hidden Valley Ranch salad dressing, Formula 409 and Clorox cleaners, Clorox 2 stain fighter and Glad wraps.

"Those pricing increases look pretty aggressive, but I'm sure they've thought this through," said Edward Jones analyst Jack Russo. "They realize there's going to be some volume hit from this."

Clorox anticipates volume falling in the first half of fiscal 2012, that ends December, as it raises prices. Gross margin is expected to decline 1.5 to 1.75 percentage points in the first quarter.

By the numbers Clorox earned $169 million, or $1.26 per share, in the fiscal fourth quarter that ended in June, down from $171 million, or $1.20 per share, on more shares outstanding a year earlier.

Analysts, on average, expected it to earn $1.19 per share, according to Thomson Reuters I/B/E/S. Sales rose 3.7 percent to $1.48 billion.

Volume grew in the company's cleaning, household and lifestyle categories, but was flat in the international unit. Gross margin declined to 43.5 percent from 44.3 percent a year earlier, due largely to higher commodity costs.

Clorox still expects to earn $4.00 to $4.10 per share this year, including plans to spend about 18 to 20 cents per share on technology and facilities. Analysts are looking for it to earn $4.06 per share.

The company expects sales to rise 1 percent to 3 percent in fiscal 2012 after falling $3 million last year. It now expects $140 million to $150 million in higher commodity costs this fiscal year, down from its prior forecast of $160 million to $170 million.



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Trader disclosure: On Aug 3, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Terranova owns (VRTS); Terranova owns (IBM); Terranova owns (FCX); Terranova owns (CVI); Terranova owns (AAPL); Terranova owns (GS); Terranova owns (BX); Terranova owns (XOM); Steve Grasso owns (AMD); Steve Grasso owns (ASTM); Steve Grasso owns (BA); Steve Grasso owns (BAC); Steve Grasso owns (C); Steve Grasso owns (D); Steve Grasso owns (JPM); Steve Grasso owns (LIT); Steve Grasso owns (LPX); Steve Grasso owns (LVS); Steve Grasso owns (MAR); Steve Grasso owns (MHY); Steve Grasso owns (NDAQ); Steve Grasso owns (PFE); Steve Grasso owns (PRST); Steve Grasso owns (UAL); Steve Grasso owns (XHB); Steve Grasso owns (XLB); Steve Grasso owns (XLI); Seymour owns (AAPL); Seymour owns (BAC); Seymour is short (FCX) ; Finerman owns (AAPL); Finerman owns (BAC); Finerman owns (JPM)

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