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4 Consumer Products Stocks in Focus Amid Industry Challenges

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Players in the Zacks Consumer Products – Staples industry are encountering margin pressure due to cost inflation on escalated costs of inputs, transport and labor. Supply-chain disruptions and COVID-related costs are also impeding growth for some companies. Apart from this, moderating demand from the year-ago period’s major pandemic-led spike is hurting year-over-year sales comparisons of a number of industry players.

That being said, prudent saving measures, solid online sales, and focus on portfolio enhancement and innovation have been working in favor of Newell Brands Inc. (NWL - Free Report) , Tupperware Brands Corporation (TUP - Free Report) , Albertsons Companies, Inc. (ACI - Free Report) and Chewy, Inc. ((CHWY - Free Report) ).

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 of the 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

Cost Inflation: A number of industry players are battling cost inflation, stemming from higher costs of inputs. Companies are also seeing increased labor and transportation costs due to tough market conditions. Several companies are bearing the brunt of supply-chain disruptions and costs associated with COVID-19. 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.

Volatile Demand: Some companies are seeing tough sales comparisons with the year-ago period, which benefited from a major spike in demand due to the pandemic-led at-home consumption. While at-home consumption and consumer demand remain elevated compared with pre-pandemic periods, both have tapered off from the exceptional growth witnessed last year. This is because, with things opening up and the vaccination drive gathering pace, consumers have started to step out. Incidentally, Kimberly-Clark Corporation’s (KMB - Free Report) second-quarter 2021 performance reflects continued volatility induced by the pandemic – including soft consumer tissue volumes in North America. Consumer tissue volumes declined from the record jump in the year-ago period, with retailers and consumers in North America curtailing inventory and at-home stocking. In fact, management lowered its 2021 earnings and sales guidance due to a tough near-term environment, including input cost inflation as well as the pandemic-related demand volatility.

Revenue-Driving Efforts: Consumer product players are focused on concerted revenue-boosting initiatives to squeeze out more from their operations. To this end, companies’ stringent 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 companies like International Flavors & Fragrances Inc. (IFF - Free Report) . Industry players have been focused on optimizing portfolio through meaningful buyouts and divestitures, which enable them to increase focus on areas with higher growth potential.

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 #208, which places it in the bottom 18% 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 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 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 April 2021, the industry’s earnings estimate for 2021 has tumbled 12.1%.

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 8% over this period against the S&P 500 index’s growth of 31.2%. Meanwhile, the broader sector has risen 14.1%.

One-Year Price Performance


 

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing consumer staples stocks, the industry is currently trading at 24.02X compared with the S&P 500’s 21.76X and the sector’s 19.88X.

Over the last five years, the industry has traded as high as 24.95X, as low as 13.32X, and at the median of 18.1X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)



 

4 Consumer Products Stocks to Keep a Close Eye on

Chewy: This provider of pet food and treats, pet supplies and medications, and other pet-health products has been benefiting from the rising pet adoption rates.  The company has been expanding product assortments across pet food, accessories as well as services. In particular, the company’s robust strides to expand pet health and wellness products as well as services are encouraging.  Its Compounding Pharmacy business, telehealth offerings and Connect with a Vet services have been doing well. Also, the company’s efforts to boost capacity and distribution network are yielding favorable results. Apart from this, strength in the e-commerce channel is an upside. To attract online sales, the Zacks Rank #2 (Buy) company has been undertaking technology upgrades for its website and other online platforms. The Zacks Consensus Estimate for the company’s current fiscal-year earnings per share (EPS) has improved by a penny to 12 cents per share over the past 60 days. Shares of the company have rallied 29.7% in the past year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: CHWY


Albertsons Companies: This Zacks Rank #2 company has soared 113.8% in the past year. We note that this food and drug store company has been gaining on its efforts to improve 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, its focus on enhancing efficiency and expanding product assortment is noteworthy. Apart from this, the company has been committed toward curtailing costs. The Zacks Consensus Estimate for the company’s current fiscal-year EPS has climbed 11.8% to $2.27 in the past 30 days.

Price and Consensus: ACI


Tupperware Brands: 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. The company’s strategies like expanding product categories, increasing distribution and access points and undertaking efficient pricing have been working well. This 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, has seen its shares rise 32.7% in the past year. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current fiscal-year EPS has jumped 15.5% to $3.27 in the past 60 days.

Price and Consensus: TUP


Newell Brands: Shares of this designer, manufacturer and distributor of consumer and commercial products have surged 66.4% in the past year. The company is benefiting from strength in its Food and Home Appliances categories. Increased online sales given consumers’ rising shift to the online platform are also working well for this Zacks Rank #3 (Hold) company. Apart from this, Newell Brands’ focus on Project FUEL is noteworthy. The Zacks Consensus Estimate for the company’s current fiscal-year EPS has remained stable at $1.74 over the last 30 days.

Price and Consensus: NWL