Defensive Strategy

Clorox Stumbles with Burt’s Bees

3 Jan 2011  

Clorox released second quarter earnings guidance today and the results were not good.  Clorox also announced that it was taking a goodwill impairment charge of about $250 million due to the Burt’s Bees acquisition.

The Clorox press release quoted CFO Dan Heinrich stating, “The Burt’s Bees business remains a very solid contributor to Clorox’s results, with sales growth and profit margins above the company average….  Despite the impairment, Burt’s Bees remains the fastest growing business unit in the company, with double-digit fiscal-year-to-date sales growth, and our revised estimates continue to project low double-digit sales growth for this business over the next several years.”

This is all very odd. 

Clorox purchased Burt’s Bees in at the end of 2007 for $925 million, net of an additional $25 million payment for tax benefits.  Now, three years later, the company is writing off about $250 million, over 25% of the purchase price.

At the same time, the CFO is proclaiming that Burt’s Bees is the fastest growing, highest margin part of the company.

There is a substantial disconnect in the story.

I think there are two possible explanations.

First, it could be that Clorox vastly over-paid.  If Burt Bee’s is indeed performing as well as the CFO suggests, then the acquisition must have been based on some rather extraordinary assumptions.  Double digit sales growth for consumer product staples like shampoo and lip balm is quite an achievement, especially when combined with company leading margins.  The fact that this is way under the acquisition forecast indicates that the team at Clorox must have optimistic indeed when valuing Burt’s Bees.

Second, things at Burt’s Bees might not be as cheery as the CFO suggests.  Indeed, today’s announcement is a bit over the top in its praise for the brand.  It could well be that the business is struggling in a tough economic environment.

Either way, the Burt’s Bees acquisition is clearly not going well financially for Clorox.  There isn’t a lot of obvious synergy with Clorox’s other business units, either.  Indeed, Clorox is running Burt’s Bees as a totally distinct business.  If you have some time, try finding Clorox branding on the Burt’s Bees website.

The lesson in this: be very careful when acquiring exciting little brands.  Optimistic assumptions can lead to bad business decisions.

16 Responses

  1. Tony Smith says:

    I worked for Tom and Kate in Kennebunk, ME in the 90’s at the old train station. I doubt Clorox could show the love and care for the product that the Chappell’s did. IF Clorox can at least keep the spirit alive that Tom and Kate put into their company AND their employees they will continue to succeed

  2. Anne says:

    As soon as I found out Clorox bought Burt’s Bees I knew they were going to start polluting the products! Come on…it’s Clorox. Why would you think they’d do anything else! It’s cheaper for them to make a product using garbage ingredients.

  3. Tomi. stefanos says:

    I was a Burts Bees customer for years..I could put Burts bees on a popped up fever blister, and it was gone. The have all the varied flavors, but their product is no longer burt’s bees since it was purchased. I just figured they left out the bee action, so product was gone. Ur lips stayed moist, but no more, looked to see if they added the product in that make skin dry. Can’t imagine spending that kind of money for a sham product. No wonder it’s in the toilet, I guess we customers thought it was coming back, but alas, no.

  4. Lauren says:

    You can check out They make all natural products and use sustainably harvested bee byproducts from their hives is Southern Michigan. The lip balms are awesome!

  5. amber says:

    I will no longer be purchasing burts bees as well. It was my favorite lip balm and face wash. Guess I will just start making my own.

  6. Kari says:

    I just looked up my favorite lip balm and noticed “aroma” undefined, corral, farnesol, and linalool! What the hell has Clorox done to my favorite products???????? A**holes. Bye bye Burt’s Bees forever.

  7. Seka Persa says:

    And their tinted lip balms and shears also contain alumina… I just thought I found safe and natural lipstick, but I guess not…. too bad, and shame on you marketing it as “natural”…

  8. MMR says:

    I bought 3 bottles of the body butter before realizing that it NOW contains aluminum. I am going to return all of the bottles. I do not need a refund, I no longer can be one of their customer, as I have been (for my children and I) for years. Aubrey Organics is still in business and reliable.

  9. emma reagan says:

    Clorox has added Aluminum to the Burts Bees body butter!!!! This is a toxic accumulative chemical that has been linked to Alzheimers and breast cancer. And they still market it as a “natural” product. Any consumer who reads labels and truly cares about what they put on their body would NEVER use this product. So, I don’t get it. Clorox buys a natural product and then immediately alienates all the consumers who purchase it. Now there’s some intelligent business strategies. Way to go Clorox.

  10. Beverley H. says:

    I have beeb using Burts Bees face and eye cream for years however this past year I had noticing that my eyes have been burning every time I put their face and eye creams on my face. So I recently read the label and saw that this product now contains alcohol and fragrance and long with some other non-organic chemicals. No wonder my eyes were burning. I once trusted Burts Bees products to be organic and safe, Now I no longer trust their products. Why would anyone put alcohol and frangrance in an eye cream product? What’s next parabens and phthalates? I also did not realize that Clorox had bought the company, Apparently that explains the crap being put in the Burts Bees products.. Clorox and Burts Bees have lost me as a customer and I am going to warn all my friends and family that their products now contain chemicals that are unsafe and their products are no longer organic!

    • Eve says:

      It’s always been there. Clorox has nothing to do with the R&D going on at Burt’s Bees and never has. Burt’s is still functioning just as it always has. The formulas have not changed and they are still using natural ingredients. The stabilizers (which is what the type of alcohol is) are natural and come from organic sources.

  11. Rod Roth says:

    Since the Clorox take over the product is no longer the same as it was with berts bees. 100% of the local more organic stores have completely dropped the Burts Bees line. I will no longrer purchase any Burts Bees products. I cannot find the product line any where in the greator Eugen, Or.

  12. says:

    A majority of these “corporate buy outs” of the “little guy” natural food/products have never really worked out, Take a look at Quakers purchase of Nile’s Spice and Mother’s, also look at how many companies where victimized by Cascadian Farm’s the “little organic food company” ran by a man called Gene Kahn who knowledgable insiders call “The Con Artist of the Organic Trade, I believe he ended up as a VP for General Mills when they bought the company in aprx. 2000, the third buyer of Cascadian Farm (1st the really big sucker’s were Welch’s in late 1990, then the Disney family’s Shamrock in 1995).

    Now there is a great book on how the big boy’s got “Kahned” pronunced “Conned” and a perfect example of how really corrupted the organic food business was and still continyes to be, when Welsh’s bought Cascadian Farm Gene kahns’ best friend was supposedly a “partner in the company.Welsh’s paid through the noise to unload that deadwood aprx. a few years later it turns out that Roger Wexler the suppose partner was a partner in default…never really paying for his share of the partnership…Gene’s brother-in law jay Solmon was brought in to clean up the books and make it look like Roger had made his first annual payement for part ownership…oh dd I mention and Roger and Gene from time to time sold products labeled “organic” but really were not, they continued to do this even after Welsh’s was on board…the word was Welsh’s could hardly wait to unload their interest after the 5 year compact was up.
    So a warning to Corporation’s that want to buy Natural/organic product companies…beware that old saying that “it is not nice to fol Mother Nature” when acquiring a “Natural” company…you just might end up being the one’s fooled!
    A small footnote in 1990 their were aprx. 75 t0 95 approved “natural organic fertilizers and herbizides and pesticides before he big Corporation got into the trade and the USDA, now that count I understand is up to almost 300 products.

    Oh yes, and what ever happened to Roger Wexler, Gene Kahns’ best friend and ex”partner” in Cascadian Farm? I had a interesting conversation with Frank Z. at one time in upper management with the Former upscale Natural Food grocery in S. California bought by Whole Foods, he told me of a trip he took down to South America on a vacation, where he met up with a wealth landowner/farmer in a upscale Hotel during their conversation the gentleman farmer asked frank what business he was in, Frank told him the gentleman told him that he sold crops to Roger at Cascadian Farm, Frank said “oh, your a Organic framer has well! The Gentleman ask what that was…Frank told him about know harmful chemicals and fertilzers abd pesticides…the man responded that They were not Organic growers…”too many pests that they spray their crops with what ever they felt they had to use…in other words not organic crops.but yet Cascadian was buying teh crops….Roger’s company that he formed with the money he got from Welsh’s to go bye-bye is known by two names last time I heard, they are CF Fresh and Rootbaga Farms and they are still buying “Organic Crops” from South America…the question begs has Roger changed his colors and gone green>>>FINALLY?

    So please rember the new slogan by America’s Organic Farmer’s…”Buy Locally”…I guess there is a real meaning behind it….just start looking into the history of the “Organic” Dairy industry more interesting stuff…also the companies who do the third party cerification of products as being organic…do I smell a rotten apple?

    In reality it is the Corporations that have to worry, not so much the consumer’s, as to what they are buying!

    • Derrick Moore says:

      How does Clorox continue to WIN? What is there strategy to continue beating the compatition? Why do they continue to buy small business?

  13. pBerg says:

    Haha, go Burt’s Bees! Stickin it to Clorox.

    I for one love the company and am glad it generated so much goodwill on Clorox’s part.

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