Nevertheless, strategic saving measures, robust e-commerce operations, and focus on portfolio enhancement and innovation have been working well for Kimberly-Clark Corporation’s KMB, Newell Brands Inc. NWL, Albertsons Companies, Inc. ACI and Tupperware Brands Corporation TUP.
About the Industry
The Zacks Consumer Products – Staples industry consists of companies involved in marketing, producing and distributing a wide range of consumer products. These include personal care items, cleaning equipment, stationery, bed and bath products and household goods like kitchen appliances, cutlery and food storage. Some industry participants also provide batteries and lighting products – whereas some offer pet food and treats, pet supplies, pet medications and pet services. Companies in the Consumer Products – Staples universe offer products to supermarkets, drug/grocery stores, department stores, warehouse clubs, mass merchandisers and other retail outlets. Some companies sell products to the manufacturers of perfumes and cosmetics, hair and other personal care products. Products are also sold through other distributors and the fast-growing e-commerce channel.
3 Trends Shaping the Future of the Consumer Products Staples Industry
Escalated Costs: Several industry players are encountering cost inflation, arising from increased input costs. The companies are also seeing increased labor and transportation costs due to tough market conditions. Several companies are bearing the brunt of supply-chain disruptions. Apart from this, higher advertising, e-commerce and other growth-related investments are a threat to margins. That said, the companies’ solid saving and restructuring plans along with pricing actions should offer some respite.
Tough Sales Comparison With the Year-ago Period: Some companies are seeing tough sales comparisons with the year-ago period, which had benefited from a major spike in demand due to the pandemic-led at-home consumption. Although at-home consumption and consumer demand remain elevated compared with the pre-pandemic periods, both have tapered off from the exceptional growth witnessed last year.
Revenue-Driving Initiatives: Consumer product players are focused on concerted revenue-boosting initiatives to squeeze out more from their operations. To this end, companies’ solid focus on boosting e-commerce and digital operations has been a major driver, especially amid the pandemic. Also, innovation in areas that are witnessing increasing consumer interest has been adding to the portfolio strength of several companies. Industry players have been optimizing portfolios through meaningful buyouts and divestitures, which enable them to increase focus on areas with higher growth potential.
Zacks Industry Rank Indicates Drab Prospects
The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #231, which places it in the bottom 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming less confident on this group’s earnings growth potential. Since the beginning of July 2021, the industry’s earnings estimate for 2022 has tumbled 16%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
The Zacks Consumer Products – Staples industry has lagged the S&P 500 Index as well as the broader Zacks Consumer Staples sector over the past year.
The industry has dropped 17.1% over this period against the S&P 500 Index’s growth of 23.4%. Meanwhile, the broader sector has risen 7.4%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 22.59X compared with the S&P 500’s 21.34X and the sector’s 20.66X.
Over the last five years, the industry has traded as high as 21.62X, as low as 16.47X, and at the median of 19.44X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Consumer Products Stocks to Keep a Close Eye on
Albertsons Companies: This Zacks Rank #2 (Buy) company’s shares have increased 46.4% in the past six months. The Zacks Consensus Estimate for Albertsons Companies’ current fiscal-year earnings per share (EPS) has climbed 1.5% to $2.63 in the past 30 days.
This food and drug store company has been gaining on its efforts to improve the store as well as e-commerce operations. With regard to fueling e-commerce operations, the company is making notable progress across pickup and delivery. Additionally, Albertsons Companies’ focus on enhancing efficiency and expanding product assortment is noteworthy. Apart from this, ACI has been committed toward curtailing costs.
Price and Consensus: ACI
Kimberly-Clark: This manufacturer and marketer of personal care and consumer tissue products has seen its shares increase 6.6% in the past six months. Kimberly-Clark has been gaining on its commitment toward key strategic pillars, which include a focus on improving its core business in the developed markets; speeding up growth of the Personal Care segment in developing and emerging markets, and enhancing digital and e-commerce capacities.
Apart from this, Kimberly-Cleark’s 2018 Global Restructuring and Focus on Reducing Costs Everywhere programs have been generating savings. This Zacks Rank #3 (Hold) company’s pricing actions also bode well amid the cost inflation. The Zacks Consensus Estimate for KMB’s current fiscal-year EPS has remained stable at $6.16 over the past 30 days. Shares of the company have rallied 29.7% in the past six months.
Price and Consensus: KMB
Newell Brands: Newell Brands is benefiting from favorable consumption trends for a while now. Increased online sales given consumers’ rising shift to the online platform are also working well for this Zacks Rank #3 company. Apart from this, Newell Brands’ focus on Project FUEL is noteworthy.
Newell Brands is a designer, manufacturer and distributor of consumer and commercial products. The Zacks Consensus Estimate for NWL’s current fiscal-year EPS has remained stable at $1.73 over the past 30 days. Shares of the company have dropped 12.8% in six months.
Price and Consensus: NWL
Tupperware Brands: Tupperware Brands is a provider of design-centric preparation, storage, and serving solutions for home and kitchen along with cookware, microwave products, microfiber textiles and water-filtration-related items, among others. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current fiscal-year EPS has remained stable at $3.50 in the past 30 days.
The company has been focused on solidifying its core business across geographies. Tupperware Brands has been making investments to fuel growth in its direct selling business as well as other expansion endeavors. Tupperware Brands’ strategies like expanding product categories, increasing distribution and access points and undertaking efficient pricing have been working well. Shares of TUP have declined 30.2% in the past six months.
Price and Consensus: TUP
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