Clorox (NYSE:CLX) pulls out of Argentina in wake up call for Milei

Argentina’s new president Javier Milei has been relentless in his efforts to rejuvenate the country’s economy by cutting government spending and working to reduce runaway inflation, but one American conglomerate doesn’t want to wait around any longer and see what happens. The Clorox Company (NYSE: CLX), known for its household cleaning products including bleach, said last week that it would sell a local subsidiary in the country and exit the market.

The development is a harsh rebuke for a government that had been working to fix many of the imbalances that have plagued the economy for years. The context is interesting because of the parallels with what happened in Venezuela, where Clorox left at the height of that country’s economic and social crisis in 2014. It suggests that Milei may have a more difficult battle ahead of him than he likes to admit. 

Clorox is selling the Argentine unit to a group that includes a private equity fund associated with Grupo Mariposa, and the transaction includes two production plants and the rights to certain brands and intellectual property in Argentina, Uruguay and Paraguay. Financial terms weren’t disclosed, but the company’s statement alluded to a challenging operating environment. 

“I would like to thank our teammates in Argentina for effectively managing the business in this dynamic operating environment,” Chair and CEO Linda Rendle said, adding that the divestiture was in line with the company’s strategy to “evolve our portfolio to increase our focus on our core business to drive more consistent, profitable growth.” In other words, Clorox doesn’t want to deal with crazy anymore. 

While the company has seen overall sales and profit rise, its stock has struggled, declining 6% over the past year. It’s understandable why the company would want to clean up some messier situations and prioritize growth in healthier markets. 

Clorox said the Argentina unit represented about 2% of its 2024 net sales outlook and that it would incur a one-time, after-tax charge of about $233 million that’s mostly related to previous declines in the value of the Argentine peso. According to US accounting rules, the country was designated as a “highly inflationary economy in 2018,” and Clorox said in its latest earnings report that the business environment there “continues to be challenging due to significant volatility in Argentina’s currency, high inflation, and economic recession.” It has also previously warned about ongoing litigation in the country related to employees, contractors and suppliers. 

That’s the exact opposite of what Milei wants to hear. Since being inaugurated late last year, the libertarian leader has been working to fix the troubled economy and implemented an austerity campaign that resulted in two months of fiscal surplus after devaluing the currency and slashing transfers to provincial governments.

While central to Milei’s stated goal of eliminating currency controls that can suffocate foreign investment and were at the heart of the rot that occurred in Venezuela a decade earlier, it’s not clear just how much more Milei can cut. He’s also now seeing some resistance from Congress, courts and voters dependent on state spending. At some point, the narrative will have to shift to measures that can promote growth, and Clorox giving up on the country shows just how hard that will be. 

There are other ominous signs on the horizon. Despite some improvement in inflation, which slowed to a monthly rate of 13.2% in February from 20.6% in January, Milei’s government confirmed that it will soon unveil banknotes with more zeros. The largest note in circulation will go from 2,000 pesos (about $2) to 20,000 pesos (about $20), a telltale sign that more inflation might be on the way.