4 Consumer Product Stocks to Monitor Despite Industry Hurdles
The Zacks Consumer Products – Staples industry participants are confronting challenges arising from cost inflation, driven by heightened expenses associated with inputs, transportation and labor. Additionally, certain players in the industry are contending with elevated SG&A costs.
However, a strategic pricing approach, robust demand trends and dedication to portfolio refinement and innovation have been working favorably for Kimberly-Clark Corporation KMB, Albertsons Companies, Inc. ACI, Ollie's Bargain Outlet Holdings, Inc. OLLI and Grocery Outlet Holding Corp. GO.
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 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
Cost-Related Concerns: Players in the Consumer Products – Staples realm are contending with rising input costs. Businesses are grappling with increased spending on labor, transportation and freight stemming from challenging market conditions. Many companies have projected input cost inflation to persist in the near term in their last quarterly release. Beyond this, heightened SG&A costs, expenses associated with digital progress, and elevated marketing spend pose challenges to profit margins. However, strategies focused on restructuring and pricing initiatives are anticipated to alleviate some of the pressure.
Currency Fluctuations: Numerous players in the industry face susceptibility to unpredictable currency movements due to their exposure to international markets. The risk arises from the potential impact of a stronger U.S. dollar, which may compel companies to contemplate either raising prices or squeezing profit margins in locations beyond the United States.
Revenue Enhancement Endeavors: Within the consumer product space, entities are strategically focusing on optimizing their operations to maximize returns. This involves a greater emphasis on bolstering e-commerce and digital initiatives. Furthermore, innovations targeted at segments with increasing consumer demand have fortified the overall strength of companies. Industry participants are strategically refining their portfolios through impactful acquisitions and divestments, allowing them to concentrate more intensely on areas with greater potential for growth.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #167, which places it in the bottom 33% 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 drab 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 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 about this group’s earnings growth potential. Since the beginning of August 2023, the industry’s earnings estimate for 2023 has declined 4.6%.
Let’s look at the industry’s performance and current valuation.
Industry vs. Broader Market
The Zacks Consumer Products – Staples industry has lagged the S&P 500 Index and the broader Zacks Consumer Staples sector over the past year.
The industry has declined 23.6% over this period against the S&P 500 Index’s growth of 16.6%. Meanwhile, the broader sector has declined 5.4%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing consumer staple stocks, the industry is currently trading at 16.55X compared with the S&P 500’s 19.09X and the sector’s 16.68X.
Over the last five years, the industry has traded as high as 26.15X, as low as 15.96 and at the median of 20.16X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Consumer Product Stocks to Keep a Close Eye On
Kimberly-Clark: This Zacks Rank #2 (Buy) company has been gaining from its growth strategies, focused on the enhancement of its core business in developed markets, accelerating growth in the Personal Care segment within developing and emerging markets and fortifying digital and e-commerce capabilities. The company, specializing in personal care and consumer tissue products, has been concentrating on in its pricing and savings initiatives, which have proved beneficial amid the challenges posed by cost inflation. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for KMB’s current fiscal-year bottom line has improved from $6.43 to $6.59 in the past 30 days. Shares of Kimberly-Clark have declined 2.1% in the past year.
Price and Consensus: KMB
Ollie’s Bargain: This value-centric retailer, specializing in brand-name merchandise, is experiencing positive outcomes from its targeted endeavors focused on store efficiency and the customer loyalty program, Ollie's Army. The effectiveness of OLLI's business model, centered on the principle of 'buying cheap and selling cheap,' along with concerted cost-containment initiatives, is further bolstering its success.
This Zacks Rank #2 stock has rallied 42.6% in the past year. The Zacks Consensus Estimate for Ollie’s Bargain’s current fiscal-year earnings per share (EPS) has increased by a penny to $2.72 over the past 30 days.
Price and Consensus: OLLI
Grocery Outlet Holding: This Zacks Rank #3 (Hold) company maintains a favorable position due to its opportunistic purchasing strategy, marketing efforts, store-growth endeavors and e-commerce initiatives to deepen the customer reach. Grocery Outlet's flexible sourcing and distribution business model, enabling the delivery of products at exceptional value, serves as an additional positive factor.
The Zacks Consensus Estimate for GO’s current fiscal-year EPS has declined by 1 cent $1.06 in the past 30 days. Shares of Grocery Outlet have tumbled 7.5% over the past year.
Price and Consensus: GO
Albertsons Companies: This food and drug store company, with a Zacks Rank #3, is benefiting from its commitment to providing efficient in-store services, advancing digital and omnichannel capabilities and driving productivity improvements. Albertsons Companies' continuous efforts to enhance product offerings contribute significantly to the overall improvement in the customer experience.
The Zacks Consensus Estimate for ACI’s current fiscal-year EPS has increased by a penny to $2.79 in the past 30 days. Shares of Albertsons Companies have risen 4.1% in the past year.
Price and Consensus: ACI
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Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report
Albertsons Companies, Inc. (ACI) : Free Stock Analysis Report
Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
Grocery Outlet Holding Corp. (GO) : Free Stock Analysis Report
