The Consumer Staples sector has been reaping benefits from an improving economy and rising consumer confidence, lately. Further, labor market optimism and gradual wage acceleration has been positively impacting consumer’s spending nature.
However, investors are skeptical regarding headwinds plaguing the sector such as unfavorable currency, declining volumes, price wars, an aggressive promotional environment and rising competition. One such stock affected by the ongoing challenges is Kimberly-Clark Corporation (KMB - Free Report) .
Kimberly-Clark, engaged in the manufacture and marketing of a wide range of consumer products around the world, has been disappointing investors for a while now with dismal organic sales trend. As a result, the company’s top line has missed the Zacks Consensus Estimate in the last seven quarters in a row, including the recently concluded second-quarter 2017.
Headwinds Derailing the Stock
The company has been witnessing weakness in organic sales particularly due to a tough industry environment in North America. During the first and second quarters of 2017, the region’s organic sales declined due to high competition, reduced promotional shipments and lower net pricing. Although organic sales have been positive in the developing and emerging markets, its growth rate has decelerated in the past few quarters. Though the company expects modest improvement in the overall environment in developing and emerging markets in the second half of 2017, the current promotional environment is weakening current market dynamics.
Kimberly-Clark has incurred lower input cost in 2016, but the trend has changed since the first quarter of 2017. Rising input costs are now hurting the company’s margins. Moreover, it expects the inflationary trend to persist in the periods ahead and anticipates increased prices for several raw materials, including pulp, in 2017. Of late, the company has also experienced a negative shift in consumer behavior in its diaper segment.
Dull Outlook, Estimates Showing Downtrend
This Zacks Rank #4 (Sell) company continues to expect industry headwinds to linger and has therefore issued soft earnings guidance for the full year. It now expects earnings per share at the low end of its previous targeted range of $6.20-$6.35. Following the company’s discouraging performance and dull outlook, the Zacks Consensus Estimate also witnessed a downtrend in the past 60 days. In the said period, estimates for 2017 have gone down nine cents to reach $6.22. Also estimated earnings of $1.55 for the third quarter depict a decline of five cents.
Shares Underperforming the Industry
Kimberly-Clark has been trying to spark a turnaround through initiatives such as aggressive cost cutting, planned innovation and marketing campaigns. However, these initiatives have failed to attract investor’s confidence. Shares of the company haven’t reflected any signs of recovery and have declined more than 2% since its dismal second-quarter results. In the past six months, the company’s shares have lost 9.1%, underperforming the industry’s decline of 7.6%. Meanwhile, the Consumer Staples sector, which includes the company, has depicted growth of 4.3% in the same time frame.
The ongoing weakness in Kimberly-Clark’s results has made investors jittery, amid global tensions. We note that investors are skeptical about President Trump’s policies. North Korea’s latest nuclear test has further raised geopolitical tensions and increased pressure on the Trump administration.
Despite these worries, it may be a good idea to look at some other consumer staples stocks that have the potential to outperform the industry. These stocks remain well positioned in the current market situation and can perform well despite the aforementioned trends. Fetching higher returns in such investment climate is a difficult task.
We have highlighted three consumer staple stocks, which have outperformed the industry’s performance. Further, these stocks carry a VGM Score of either A or B along with a Zacks Rank #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
3 Prominent Picks
The Boston Beer Company, Inc. (SAM - Free Report) , a leading alcohol producing and selling company, is an ideal pick for investor’s with its Zacks Rank #1 and a VGM Score of B. Impressively the company has delivered an average earnings surprise of 50.1% over the trailing four quarters, with a beat in the preceding past three quarters. The stock has been benefiting from cost-saving initiatives and strategic long-term innovations. In the past three months, shares of the company have increased 9.7%, slightly wider than the industry’s 7.6% gain.
Investors may also consider Nu Skin Enterprises, Inc. (NUS - Free Report) , a leading beauty company, carrying a Zacks Rank #2. The stock bears a VGM Score of B and has a long-term growth rate of 8.7%, both signifying its inherent strength. The company surpassed estimates in two out of the trailing four quarters, with an average earnings surprise of 10.8%. Nu Skin has been consistent with innovation and new product launches, helping it to expand customer base. Over the past six months shares of Nu Skin have increased 24.5%, outperforming the industry’s gain of 11.5%.
Another highly potential beauty stock that has been impressing investors is The Estée Lauder Companies Inc. (EL - Free Report) . It carries a Zacks Rank #2, holds a VGM Score of B and has a long-term growth rate of 11.8%. Moreover, Estée Lauder has surpassed estimates in the trailing four quarters, with an average earnings surprise of 13.7%. Strong online sales, positive synergies from acquisitions and a wide portfolio of brands and geographical expanse have been favoring the stock. Shares of Estée Lauder surged 30.3% over the past six months, compared with the industry’s gain of 11.5%.
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