For Immediate Release
Chicago, IL – May 16, 2017 – Today, Zacks Equity Research discusses the Industry: Consumer Staples, Part 2, including Procter & Gamble Co. (NYSE: PG – Free Report ), General Mills Inc. (NYSE: GIS – Free Report ), Molson Coors Brewing Co. (NYSE: TAP – Free Report ) and Kellogg Company (NYSE: K – Free Report ).
Industry: Consumer Staples, Part 2
The recent rebound in oil prices, encouraging employment picture, along with a gradual improvement in the manufacturing sector and housing market signal that the economy is on a recovery mode.
Consumer confidence – a key determinant of the economy’s health – had increased sharply in February and March. However, it declined in April due to less optimism in the labor market. Despite the decline, we expect consumers to remain confident regarding the economy in the near term. This positive sentiment is hence likely to translate into higher consumer spending, which accounts for more than two-thirds of U.S. economic growth.
While estimates for GDP growth increased marginally by 0.7% in the first quarter 2017, overall growth for the year is expected to improve from last year. GDP is expected to increase 2.3% in 2017 compared with 1.9% last year. The recent improvement in financial conditions is expected to contribute to the upside.
This modestly above-trend pace will further tighten the labor market, with the unemployment rate expected to decline to 4.3% by the end of this year and to 4.1% by mid-2018. That will help bump up inflation to 2% or higher over the next two years.
However, currency fluctuations and other global headwinds might dent the performance of the companies in the consumer staples space. Given such headwinds, the staples sector seems to be quite a reliable and attractive area to invest in, as these stocks can lend stability to an equity portfolio due to the relatively consistent nature of consumer demand for the products.
The sector may also appeal to income-oriented investors because of relatively attractive dividend yield than the yields offered by many bonds. Many consumer staples stocks have successfully increased their dividends over time. Therefore, despite the disruptive forces, the consumer staples sector should continue to benefit riding on steady growth, dividend income, and low volatility.
Now let’s discuss some of the key factors that have been driving consumer staples stocks since the past few quarters, despite global worries, and also have the potential to boost earnings in the near term.
Consumer product companies regularly innovate and upgrade their brands to create differentiated value propositions. In fact, companies with innovative products in their pipeline will be in a position to benefit.
Innovation has been a driving force for consumer product giants like The Procter & Gamble Co. (NYSE: PG – Free Report ) and cereal maker General Mills Inc. (NYSE: GIS – Free Report ). P&G believes that consistent product innovation, supported by strong marketing and commercialization, will help deliver stronger results over the long term. Global brewer Molson Coors Brewing Co. (NYSE: TAP – Free Report ) has also been launching new products to boost revenues and market share. These also help it to offset the impact of declining volumes. Molson Coors also invests in marketing and advertising to create brand awareness.
Transition to Health and Wellness and ‘Good-for-You’ Products
Consumer staples companies are also shifting focus from packaged food items to healthier and nutritious products in view of increasing health consciousness, rising obesity concerns and growing regulatory pressure. Companies that can respond effectively to this healthy food movement appear to be well poised in 2017 or otherwise it may hamper their sales growth. For example, food manufacturer Kellogg Company (NYSE: K – Free Report ) posted sales miss in its recently reported first quarter of 2017 on industry-wide soft consumption trends for packaged food items.
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Procter & Gamble Company (The) (PG): Free Stock Analysis Report
General Mills, Inc. (GIS): Free Stock Analysis Report
Molson Coors Brewing Company (TAP): Free Stock Analysis Report
Kellogg Company (K): Free Stock Analysis Report
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