CHICAGO, June 6, 2011 /PRNewswire/ -- Today, Zacks Equity
Research discusses the Consumer Staples, including Procter &
Gamble (NYSE: PG), Colgate Palmolive (NYSE: CL),
Kimberly-Clark (NYSE: KMB) and Altria Group (NYSE:
MO)
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
A synopsis of today's Industry Outlook is presented below. The
full article can be read at
http://www.zacks.com/stock/news/54514/Consumer+Staples+Stock+Outlook+-+June+2011
Stocks in the Consumer Staples sector have traditionally
performed better than the stock market, and especially cyclical
companies, during market declines. We are seeing evidence of this
at present -- consumer staple stocks have started shining again as
concerns about the economy's growth momentum have taken center
stage.
The fundamental explanation for this behavior is that food,
beverage, household products and cosmetics companies manufacture
and market brand name consumable products, most of which are
considered essential to daily life, such as food, drink,
toothpaste, deodorants, toilet paper, etc.
Since product demand is relatively stable, the companies
generally report earnings in line with expectations.
Beverage companies, however, are able to grow faster at the high
single-digit to low double-digit rate given growing penetration
rates. But, cosmetics companies can grow earnings a percentage
point or two above beverage companies, because they are able to
differentiate their products.
OPPORTUNITIES
We are more or less Neutral on the stocks in this sector. Though
temporarily impacted by inflation, these companies are cash rich
and can withstand the current economic headwinds. Procter &
Gamble (NYSE: PG) is one of the strongest and most financially
sound companies in the consumer staples sector. The company
generated approximately $3.2 billion
in free cash flow with a free cash flow productivity of 113%.
Although the global market growth was a meager 3% for the most
recently reported quarter, Procter & Gamble continues to see
healthy growth rates in developing markets in the range of 6% to
8%. However, margins were impacted by higher commodity costs.
Higher commodity costs compared with the year-ago quarter led to a
200 bp margin contraction in the last quarter.
In the most recent quarter, global net sales of Colgate
Palmolive (NYSE: CL) increased 4.5% year over year to
$4.0 billion despite a 3% benefit
from foreign exchange and a 2% addition from global unit volume,
which was offset by a 0.5% decline in pricing.
On an organic basis (excluding foreign exchange, acquisitions
and divestitures), sales increased 1.5% in the quarter, with gross
profit increasing by 2.8% to $2.3
billion. Gross profit margin declined by 80 basis points to
58.4% compared with the prior-year quarter, as higher material
costs and steep promotional investments undid the benefits of
cost-saving initiatives.
WEAKNESSES
Kimberly-Clark (NYSE: KMB) is one of the world's leading
manufacturers of health and hygiene products, and commands a strong
portfolio of well-established brands. In the most recent quarter,
the company reported lower than expected results. The margins were
also impacted by higher costs of raw materials.
Further, the company assumes inflation to be in the range of
$450 million to $550 million. The
increased inflation assumption is primarily due to higher costs for
virgin pulp, polymer resin and most other oil-based materials.
Although, on a long term basis we are Neutral on the stock, on a
short term basis the stock has a Zacks #4 Rank which implies a Sell
rating on the stock.
Altria Group (NYSE: MO) reported modest results for the
first quarter of 2011. Although earnings grew 4.8% year over year,
it was in line with the Zacks Consensus Estimate.
Further, revenues also contracted 2.0% to $5.6 billion. The decline was attributable to
lower net revenues from cigarettes and cigars, partially offset by
higher net revenues from smokeless products, financial services and
wine. Excluding excise taxes, revenues were flat year-over-year at
$3.9 billion.
Management at Altria stated that the business environment for
2011 is expected to remain challenging. This is because adult
consumers remain under economic pressure and face high
unemployment. In addition, Altria's tobacco operating companies
also face a number of challenges as they enter 2011.
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