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Players in the Zacks Soap and Cleaning Materials industry have been witnessing headwinds related to higher manufacturing and logistics costs, and increased commodity costs. The ongoing supply-chain headwinds have led to an increase in freight and input costs. Also, moderation in demand trends, when compared to 2020’s boom, has reduced profitability.
Nevertheless, consumers’ continued adherence toward maintaining good hygiene has been a driving force for the industry participants. Some of the players have been undertaking prudent cost-curtailment actions to support margins, alongside coming up with new products and improved marketing efforts. Such efforts are likely to aid companies like The Procter & Gamble Company (PG - Free Report) , Colgate-Palmolive Company (CL - Free Report) , Church & Dwight Co., Inc. (CHD - Free Report) and The Clorox Company (CLX - Free Report) .
About the Industry
Companies involved in the manufacturing and supply of fast-moving consumer goods (FMCG) 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, air care, dishwashing liquids and other cleaning items. Laundry detergent is one of the largest markets among these. Some of the players in this space 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 as well as through websites.
Major Trends Shaping the Future of the Soaps & Cleaning Materials Industry
Elevated Costs: The soaps and cleaning materials industry players have been grappling with escalating raw material and logistics costs, particularly transportation, due to supply chain disruptions and current industry dynamics. Higher-than-anticipated commodity and freight costs have been hurting margins. Elevated manufacturing costs and increased advertising and sales promotion expenses are other factors impacting margins. Additionally, the companies are incurring higher SG&A expenses on account of increased operational costs related to salaries and bonuses, as well as planned investments in digital capabilities and productivity enhancements. Operating costs are likely to keep rising owing to continued operational disruptions caused by the resurgence of new COVID-19 variants. To overcome these shortcomings and improve margins, some of the players are focusing on cost-containment initiatives, including streamlining the supply chain and minimizing overhead costs, among others. Most companies are resorting to price increases to cushion margins.
Impact of Demand Trends: The heightened cleaning frenzy among consumers in 2020, amid the peak of the COVID-19 pandemic, was a boon for the soaps and cleaning materials industry. With the rollout of vaccines and the society gradually emerging out of the pandemic-led adversities, demand trends for consumer goods have moderated. This has led to unfavorable year-on-year sales comparisons for a few industry participants. Nevertheless, the prolonged battle with the disease has made society realize the importance of maintaining good hygiene, especially sanitizing hands. Cultivation of this new habit is likely to continue encouraging consumers to purchase soaps and sanitizers, even after the pandemic subsides.
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 pandemic served as an opportunity for companies to broaden product lines. A few companies have been boosting offerings that complement at-home grooming practices. The players have been undertaking pricing, packaging and marketing initiatives along with restructuring actions including acquisitions and divestitures. Companies are also looking 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. Online availability of products has also been a key sales driver across various markets due to convenience and ease of shopping.
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 #221, which places it in the bottom 13% 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 year, the industry’s earnings estimates for 2021 and 2022 have declined 2.6% and 3.6%, respectively.
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’s worth taking a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Soap and Cleaning Materials industry has underperformed the S&P 500 index in the past year but outpaced the broader Zacks Consumer Staples sector marginally.
The industry has gained 5.9% in this period compared with the S&P 500’s and the broader sector’s rise of 28.4% and 5.3%, respectively.
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 23.93X compared with the S&P 500’s 22.02X and the sector’s 20.44X.
Over the past five years, the industry has traded as high as 25.08X and as low as 17.53X, with the median being 21.94X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks to Keep a Close Eye on
The Procter & Gamble Company: The Cincinnati, OH-based consumer goods giant has been benefiting from strength across all segments coupled with robust volume, pricing and mix. Procter & Gamble’s products play a key role in meeting the daily health, hygiene and cleaning needs of consumers worldwide. Increased consumer demand for its hand soaps, detergents and surface cleaning products since the pandemic has been a key catalyst. The company’s e-commerce sales have been growing globally.
Procter & Gamble is progressing with its five-year restructuring plan, which mainly targets cost-cutting in areas such as supply chain and marketing. The Zacks Consensus Estimate for PG’s 2022 earnings indicates a rise of 7.8% year over year. The consensus mark has remained unchanged in the past 30 days. Shares of this Zacks Rank #3 (Hold) company have risen 18% in the past year.
Colgate-Palmolive: Colgate’s business strategy comprises efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, the company has been expanding its Naturals range. Growth in volumes, higher pricing and investments in premium innovation and digital transformation have been key drivers in recent years.
Expanding the availability of products, via enhanced distribution to newer markets and channels, is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster growth channels while extending the geographic footprint of its brands. The Zacks Consensus Estimate for CL’s 2022 earnings indicates a rise of 5.6% year over year. The consensus mark has remained unchanged in the past 30 days. Shares of the leading oral care company have dipped 0.7% in the past year. The company has a Zacks Rank #3.
Price and Consensus: CL
Church & Dwight: The well-known specialty products company has been gaining from robust consumption and demand trends. Church & Dwight remains optimistic about its 2021 performance on category growth and impressive brand performance. The company is on track with its pricing efforts to counter the cost inflation. The company continues to analyze additional pricing actions that can be implemented in 2022 to offset the expected rise in costs further.
Church & Dwight is focused on making capital investments in 2022 and 2023 to expand its factory and supplier network capacity, courtesy of the constant strength in consumer demand. Its regular innovation helps in improving brand positions and market share in the consumer categories. Shares of this Ewing, NJ-based company have appreciated 15.7% in a year’s time. It has a Zacks Rank #3. The Zacks Consensus Estimate for CHD’s 2022 earnings indicates an improvement of 7.9% year over year. The consensus mark has remained unchanged in the past 30 days.
Price and Consensus: CHD
Clorox: Clorox is on track with the IGNITE strategy, which mainly focuses on the expansion of the key elements under the 2020 Strategy to accelerate innovation in each area of business. The company has undertaken some strategic initiatives, including pricing actions, cost-reduction efforts, increased focus on building supply-chain resiliency, and enhanced productivity to counter the ongoing cost headwinds. CLX remains on track with its cost-saving and productivity initiatives.
Clorox is witnessing strong progress in the core international business as it continues to build on the success of the segment's Go Lean strategy. The company’s cost-based pricing strategy has enabled it to address the inflationary environment that has persisted for over three years. The Zacks Consensus Estimate for Clorox’s 2022 earnings suggests growth of 24.4% year over year. The consensus mark has remained unchanged in the past 30 days. Shares of CLX have declined 15.2% in the past year. The company has a Zacks Rank #3.
Price and Consensus: CLX
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4 Soaps & Cleaning Materials Stocks to Watch Amid Cost Woes
Players in the Zacks Soap and Cleaning Materials industry have been witnessing headwinds related to higher manufacturing and logistics costs, and increased commodity costs. The ongoing supply-chain headwinds have led to an increase in freight and input costs. Also, moderation in demand trends, when compared to 2020’s boom, has reduced profitability.
Nevertheless, consumers’ continued adherence toward maintaining good hygiene has been a driving force for the industry participants. Some of the players have been undertaking prudent cost-curtailment actions to support margins, alongside coming up with new products and improved marketing efforts. Such efforts are likely to aid companies like The Procter & Gamble Company (PG - Free Report) , Colgate-Palmolive Company (CL - Free Report) , Church & Dwight Co., Inc. (CHD - Free Report) and The Clorox Company (CLX - Free Report) .
About the Industry
Companies involved in the manufacturing and supply of fast-moving consumer goods (FMCG) 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, air care, dishwashing liquids and other cleaning items. Laundry detergent is one of the largest markets among these. Some of the players in this space 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 as well as through websites.
Major Trends Shaping the Future of the Soaps & Cleaning Materials Industry
Elevated Costs: The soaps and cleaning materials industry players have been grappling with escalating raw material and logistics costs, particularly transportation, due to supply chain disruptions and current industry dynamics. Higher-than-anticipated commodity and freight costs have been hurting margins. Elevated manufacturing costs and increased advertising and sales promotion expenses are other factors impacting margins. Additionally, the companies are incurring higher SG&A expenses on account of increased operational costs related to salaries and bonuses, as well as planned investments in digital capabilities and productivity enhancements. Operating costs are likely to keep rising owing to continued operational disruptions caused by the resurgence of new COVID-19 variants. To overcome these shortcomings and improve margins, some of the players are focusing on cost-containment initiatives, including streamlining the supply chain and minimizing overhead costs, among others. Most companies are resorting to price increases to cushion margins.
Impact of Demand Trends: The heightened cleaning frenzy among consumers in 2020, amid the peak of the COVID-19 pandemic, was a boon for the soaps and cleaning materials industry. With the rollout of vaccines and the society gradually emerging out of the pandemic-led adversities, demand trends for consumer goods have moderated. This has led to unfavorable year-on-year sales comparisons for a few industry participants. Nevertheless, the prolonged battle with the disease has made society realize the importance of maintaining good hygiene, especially sanitizing hands. Cultivation of this new habit is likely to continue encouraging consumers to purchase soaps and sanitizers, even after the pandemic subsides.
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 pandemic served as an opportunity for companies to broaden product lines. A few companies have been boosting offerings that complement at-home grooming practices. The players have been undertaking pricing, packaging and marketing initiatives along with restructuring actions including acquisitions and divestitures. Companies are also looking 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. Online availability of products has also been a key sales driver across various markets due to convenience and ease of shopping.
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 #221, which places it in the bottom 13% 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 year, the industry’s earnings estimates for 2021 and 2022 have declined 2.6% and 3.6%, respectively.
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’s worth taking a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Soap and Cleaning Materials industry has underperformed the S&P 500 index in the past year but outpaced the broader Zacks Consumer Staples sector marginally.
The industry has gained 5.9% in this period compared with the S&P 500’s and the broader sector’s rise of 28.4% and 5.3%, respectively.
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 23.93X compared with the S&P 500’s 22.02X and the sector’s 20.44X.
Over the past five years, the industry has traded as high as 25.08X and as low as 17.53X, with the median being 21.94X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks to Keep a Close Eye on
The Procter & Gamble Company: The Cincinnati, OH-based consumer goods giant has been benefiting from strength across all segments coupled with robust volume, pricing and mix. Procter & Gamble’s products play a key role in meeting the daily health, hygiene and cleaning needs of consumers worldwide. Increased consumer demand for its hand soaps, detergents and surface cleaning products since the pandemic has been a key catalyst. The company’s e-commerce sales have been growing globally.
Procter & Gamble is progressing with its five-year restructuring plan, which mainly targets cost-cutting in areas such as supply chain and marketing. The Zacks Consensus Estimate for PG’s 2022 earnings indicates a rise of 7.8% year over year. The consensus mark has remained unchanged in the past 30 days. Shares of this Zacks Rank #3 (Hold) company have risen 18% in the past year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: PG
Colgate-Palmolive: Colgate’s business strategy comprises efforts to increase its leadership in key product categories through innovation in core businesses, tracking adjacent categories growth and expansion into new markets and channels. Due to the shift of consumer preference to organic and natural ingredients, the company has been expanding its Naturals range. Growth in volumes, higher pricing and investments in premium innovation and digital transformation have been key drivers in recent years.
Expanding the availability of products, via enhanced distribution to newer markets and channels, is one of Colgate’s priorities to improve organic sales. The company is aggressively expanding into faster growth channels while extending the geographic footprint of its brands. The Zacks Consensus Estimate for CL’s 2022 earnings indicates a rise of 5.6% year over year. The consensus mark has remained unchanged in the past 30 days. Shares of the leading oral care company have dipped 0.7% in the past year. The company has a Zacks Rank #3.
Price and Consensus: CL
Church & Dwight: The well-known specialty products company has been gaining from robust consumption and demand trends. Church & Dwight remains optimistic about its 2021 performance on category growth and impressive brand performance. The company is on track with its pricing efforts to counter the cost inflation. The company continues to analyze additional pricing actions that can be implemented in 2022 to offset the expected rise in costs further.
Church & Dwight is focused on making capital investments in 2022 and 2023 to expand its factory and supplier network capacity, courtesy of the constant strength in consumer demand. Its regular innovation helps in improving brand positions and market share in the consumer categories. Shares of this Ewing, NJ-based company have appreciated 15.7% in a year’s time. It has a Zacks Rank #3. The Zacks Consensus Estimate for CHD’s 2022 earnings indicates an improvement of 7.9% year over year. The consensus mark has remained unchanged in the past 30 days.
Price and Consensus: CHD
Clorox: Clorox is on track with the IGNITE strategy, which mainly focuses on the expansion of the key elements under the 2020 Strategy to accelerate innovation in each area of business. The company has undertaken some strategic initiatives, including pricing actions, cost-reduction efforts, increased focus on building supply-chain resiliency, and enhanced productivity to counter the ongoing cost headwinds. CLX remains on track with its cost-saving and productivity initiatives.
Clorox is witnessing strong progress in the core international business as it continues to build on the success of the segment's Go Lean strategy. The company’s cost-based pricing strategy has enabled it to address the inflationary environment that has persisted for over three years. The Zacks Consensus Estimate for Clorox’s 2022 earnings suggests growth of 24.4% year over year. The consensus mark has remained unchanged in the past 30 days. Shares of CLX have declined 15.2% in the past year. The company has a Zacks Rank #3.
Price and Consensus: CLX