Chicago, IL – October 18, 2024 – Today, Zacks Equity Research discusses Kimberly-Clark Corporation KMB, International Flavors & Fragrances Inc. IFF, Ollie's Bargain Outlet Holdings, Inc. OLLI and Newell Brands Inc. NWL.
The Zacks Consumer Products – Staples industry participants have been in good shape, benefiting from the consistent demand for essential products, as consumers continue to prioritize necessities even during challenging economic times. Efforts to drive revenue growth through innovation, new product launches and expansion into channels like e-commerce have been successful.
Saving measures and restructuring efforts have helped companies in the industry manage rising cost pressures. These upsides have positioned companies like Kimberly-Clark Corporation, International Flavors & Fragrances Inc., Ollie's Bargain Outlet Holdings, Inc. and Newell Brands Inc. well for growth.
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
Maximizing Revenues Through Strategic Optimization: Within the consumer product space, companies are strategically optimizing their operations to maximize returns. This includes a strong focus on enhancing e-commerce and digital initiatives. They are also constantly innovating to align with shifting consumer preferences, such as offering healthier food choices, adopting eco-friendly packaging and using technology to improve convenience.
These innovations not only drive growth but also keep companies competitive in a rapidly evolving market. Apart from this, many industry players are refining their portfolios through strategic acquisitions and divestments, allowing them to focus more on areas with higher growth potential.
Resilient Demand for Essential Products: Since companies in the consumer products – staples industry provide essential products used in daily life, demand remains relatively steady regardless of economic conditions. Demand for many staples has increased compared to pre-pandemic levels due to the rise in at-home consumption.
With many Americans continuing to work and eat at home, this trend is expected to stay. The ongoing macroeconomic challenges, such as high inflation have led consumers to reduce discretionary spending and eating out, favoring home-cooked meals. These factors help maintain a strong demand for staple goods.
Navigating Inflationary Challenges and Cost Pressures: The industry faces significant cost pressures due to high raw material prices, labor costs and transportation expenses. This inflationary environment can erode profit margins if companies are unable to pass on the increased costs to consumers through higher prices.
Elevated SG&A costs, investments in digital advancements and increased marketing expenditures have also been impacting profit margins. However, many companies are implementing restructuring initiatives and cost-saving measures to alleviate some of these pressures and protect profitability.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #103, which places it in the top 41% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright 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.
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 risen 10.9% over this period compared with the S&P 500 Index's growth of 34.4%. Meanwhile, the broader sector has increased 14.2%.
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 18.67X compared with the S&P 500's 22.09X and the sector's 18.09X.
Over the last five years, the industry has traded as high as 21.83X, as low as 14.4X and at the median of 17.9X.
4 Consumer Product Stocks to Keep a Close Eye On
International Flavors & Fragrances: This global leader in food, beverage, scent, home and personal care, and health has been adopting a customer-focused and innovation-led strategy. This Zacks Rank #1 (Strong Buy) player has been centered on expanding investments in key areas such as R&D, commercial efforts and production capacity across its flavors, scent, and health and biosciences segments to enhance product offerings and meet evolving market demands.
International Flavors & Fragrances has also prioritized digital system upgrades to improve efficiency and customer engagement. You can see the complete list of today's Zacks #1 Rank stocks here.
Another growth driver is IFF's focus on its functional ingredients business, where it has implemented productivity initiatives to optimize margins and better target high-value customer segments. The Zacks Consensus Estimate for International Flavors & Fragrances' current fiscal-year earnings per share (EPS) has increased from $4.17 to $4.23 in the past 30 days. This suggests growth of 26.7% from the year-ago period. Shares of International Flavors & Fragrances have surged 57.8% in the past year.
Ollie's Bargain: This Zacks Rank #2 (Buy) company excels in offering a wide range of brand-name products across multiple categories at significantly reduced prices. The company's business operating model of buying cheap and selling cheap, cost-containment efforts, focus on store productivity and expansion of the customer reward program, Ollie's Army, reinforce its position in the industry. Growing trade-down trends and favorable responses to deals with product offerings appealing to a broader customer base have also been contributing to its performance.
The Zacks Consensus Estimate for Ollie's Bargain's current fiscal year EPS has increased by a penny to $3.28 over the past 60 days. This calls for growth of 12.7% year over year. OLLI has seen its shares soar 33.1% in the past year.
Kimberly-Clark: This Zacks Rank #3 (Hold) company's focus on innovation, consumer-centric approach and strategic investments in product development have been leading to successful launches and market expansion. Kimberly-Clark is focused on long-term growth opportunities, including leveraging its brand investments, enhancing its product mix and driving volume growth through consumer-focused strategies. Effective implementation of revenue growth management strategies (like pricing) and ongoing productivity initiatives have been aiding Kimberly-Clark's organic sales and gross margin amid cost inflation.
Saving plans like Focus on Reducing Costs Everywhere or the FORCE Program have also been working well for Kimberly-Clark. The Zacks Consensus Estimate for KMB's 2024 bottom line has remained unchanged at $7.25 in the past 30 days. This suggests growth of 10.4% from the year-ago period. Shares of Kimberly-Clark have jumped 18.2% in the past year.
Newell Brands: This designer, manufacturer and distributor of consumer and commercial products has been benefiting from its actions to accelerate productivity and efficiency through productivity plans, driving automation and fully implementing Project Ovid. Newell Brands is also evaluating opportunities to optimize the category mix within each business unit. The increased focus on revenue growth management and aggressive efforts to reduce SKU and supply network optimization bode well for this Zacks Rank #3 company.
Newell Brands has been gaining from its efforts to strengthen front-end commercial capabilities via consumer-driven innovation. The Zacks Consensus Estimate for NWL's 2024 EPS has remained stable at 65 cents over the past 30 days. Shares of Newell Brands have rallied 8.9 in a year.
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