3 Soaps & Cleaning Materials Stocks to Watch in a Gloomy Industry
Players in the Zacks Soap and Cleaning Materials industry have been experiencing headwinds from higher manufacturing and logistic costs and increased commodity costs. The ongoing supply-chain constraints have led to increased freight and input costs. Some of the industry participants have been undertaking cost-saving actions to support margins while coming up with new products and improved marketing activities.
Nevertheless, there is solid demand for consumer products and brands, strong operational execution and expansion into new markets. Robust pricing and marketing initiatives have been vital in boosting sales for industry participants. Such efforts, along with innovation, are likely to aid companies like The Procter & Gamble Company PG, Colgate-Palmolive Company CL and Church & Dwight Co., Inc. CHD.
About the Industry
Companies involved in the manufacturing and supply of fast-moving consumer goods, including personal care, household and specialty products, primarily make up the Zacks Soap and Cleaning Materials industry. The personal care segment comprises skin and hair care products, deodorants, and oral care items. The household category covers home care products, including laundry care, house cleaning agents, bleaching products, dishwashing liquids and other cleaning items. Laundry detergent is one of the largest markets among the ones mentioned above. Some players also offer baby and feminine care items. Some companies offer pet care products. These companies market and sell products through supermarkets, mass merchandisers, grocery stores, distributors, wholesalers, department stores, drugstores, specialty stores, dollar stores and pet stores, and websites.
Major Trends Shaping the Future of the Soaps & Cleaning Materials Industry
Elevated Costs & Expenses: The soaps and cleaning materials industry players have been bearing the brunt of rising raw material and logistic costs owing to supply-chain disruptions and current industry dynamics. Higher-than-anticipated commodity and freight costs have been hurting margins. Some of the other factors, like the increase in manufacturing and distribution costs, along with higher advertising and sales promotion expenses, have been denting margins. In addition, the industry players have been subject to higher operational costs related to salaries and bonuses, as well as investments in digital capabilities and productivity enhancements. To mitigate the impact of higher costs and expenses on margins, some of the players are banking on cost-containment initiatives, including streamlining the supply chain and minimizing overhead costs, among others. Most of the companies are resorting to price increases to cushion their margins.
Demand Trends & Competition: The industry participants have been witnessing volatile demand trends across markets and ambiguous pricing conditions. Increased awareness about personal and household hygiene, particularly after the pandemic, have been fuelling product demand for the industry players. The increased adoption of new habits, including maintaining good hygiene, especially sanitizing hands, is likely to continue to encourage consumers to purchase soaps and sanitizers. However, the industry players are facing stiff competition due to the availability of alternate products in the markets. With the rise in competition, players remain focused on actively coming up with hygiene campaigns and promotional activities.
Product Innovation & Strategic Efforts: Investments in product development to suit consumers’ changing needs have been supporting the companies in the soaps and cleaning products space. The companies frequently invest in innovation, product portfolio and digital capabilities to drive sales and keep pace with customers’ changing tastes and preferences. Players have been undertaking pricing, packaging and marketing initiatives, along with restructuring actions, including acquisitions and divestitures. Companies are also striving to expand into new markets and channels. Developing products with eco-friendly and natural ingredients is another area of focus among industry players, as consumers increasingly prefer environment-friendly ingredients in their daily use items. The increase in e-commerce shopping has been another key sales driver across various markets due to convenience and ease of shopping. The companies are constantly stepping up their efforts in the e-commerce arena through improved delivery and payment systems.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Soap and Cleaning Materials industry is housed within the broader Zacks Consumer Staples sector. The industry currently carries a Zacks Industry Rank #235, which places it in the bottom 6% 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 bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning 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 losing confidence in this group’s earnings growth potential. In the past couple of months, the industry’s earnings estimates for 2023 have declined by 1%.
Despite the murky scenario, we will present a few stocks that one can retain in their portfolio, given their solid growth endeavors. But before that, it is worth taking a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Soap and Cleaning Materials industry has outperformed the broader Zacks Consumer Staples sector in the past six months. However, it has lagged the S&P 500 index in the same period.
The industry has lost 6.8% in the past six months, whereas the S&P 500 increased 0.7% and the broader sector declined 13.6%.
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 21.44X compared with the S&P 500’s 17.79X and the sector’s 16.13X.
Over the past five years, the industry has traded as high as 25.13X and as low as 19.88X, the median being 22.28X, as the chart below shows.
Price-to-Earnings Ratio Versus S&P 500 (Past 5 Years)
Price-to-Earnings Ratio Versus Sector (Past 5 Years)
3 Stocks to Keep a Close Eye on
Procter & Gamble: The Cincinnati, OH-based consumer goods giant has been benefiting from strength across all segments, coupled with robust volume, pricing and a favorable mix. Procter & Gamble’s products play a key role in meeting the daily health, hygiene and cleaning needs of consumers worldwide. Procter & Gamble remains focused on productivity and cost-saving plans to boost margins. The company’s continued investment in the business, alongside efforts to offset macro cost headwinds and balance top and bottom-line growth, underscores its productivity efforts. The company is witnessing cost savings and efficiency improvements across all facets of the business. With the supply chain 3.0 program introduced in fourth-quarter fiscal 2023, the company is driving improved capacity, greater agility, flexibility, scalability, transparency and resilience, along with greater productivity.
The company remains focused on productivity and cost-saving plans to boost margins. The company’s continued investments in business, alongside efforts to offset macro cost headwinds and balance top and bottom-line growth, underscore its productivity efforts. With the supply chain 3.0 program introduced in fourth-quarter fiscal 2023, the company is driving improved capacity, greater agility, flexibility, scalability, transparency and resilience, along with greater productivity. The Zacks Consensus Estimate for PG’s fiscal 2024 sales and earnings indicate 3.8% and 8.6% year-over-year increases, respectively. The consensus mark for its fiscal 2024 earnings has increased 0.5% in the past 30 days. Shares of the Zacks Rank #2 (Buy) company have increased 10.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: PG
Church & Dwight: The Ewing, NJ-based, specialty products company has gained from its prudent buyouts, solid innovation and favorable consumption demand. Management strategically increased its presence through acquisitions to grow its portfolio. It recently completed its buyout of the Hero Mighty Patch brand (or Hero) and other acne treatment products.
Church & Dwight is focused on making capital investments to expand its factory and supplier network capacity, courtesy of the strength in consumer demand for its products. Shares of the Zacks Rank #3 (Hold) company have increased 20.8% in the past year. The Zacks Consensus Estimate for CHD’s 2023 sales and earnings indicates year-over-year growth of 8.5% and 6.7%, respectively. The consensus mark for 2023 earnings has been stable in the past 30 days.
Price and Consensus: CHD
Colgate: The Zacks Rank #3 company has been benefiting from solid consumer demand for personal care and home care products. Colgate’s focus on innovation and digital transformation, along with its brand strength, has been driving its performance. Of late, the performance of its premium innovation products, including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste, has been impressive.
The company has been aggressively expanding into faster growth channels while extending the geographic footprint of its brands. We note that the Zacks Consensus Estimate for CL’s 2023 sales and earnings indicates year-over-year growth of 7.5% and 6.4%, respectively. Although shares of the leading oral care company have declined 2.1%% in the past year, it has rebounded 2.5% in the past month.
Price and Consensus: CL
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