Players in the Zacks Soap and Cleaning Materials industry have been witnessing headwinds from higher manufacturing and logistic costs, and increased commodity costs. The ongoing supply-chain constraints have led to increased freight and input costs. Some of the players have been undertaking cost-curtailment actions to support margins, while coming up with the latest products and improved marketing efforts.
Nevertheless, consumers’ continued adherence to maintaining good hygiene has been a driving force for the industry participants. Companies are focused on conducting hygiene campaigns to promote products and expand their customer base. Such efforts, along with innovation, are likely to aid companies like Colgate-Palmolive Company CL, Reckitt Benckiser Group RBGLY and Henkel AG & Co. HENKY.
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 the above-mentioned ones. A few 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, and 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 logistic 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 and distribution costs, as well as increased advertising and sales promotion expenses, are other factors impacting margins. Additionally, the companies have been 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. 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 their margins.
Demand Trends & Competition: The soaps and cleaning materials industry has been experiencing volatile demand trends across markets and ambiguous pricing conditions. Post the COVID-19 pandemic, increased awareness about personal and household hygiene are likely to fuel product demand for players in the industry. The cultivation of new habits , including maintaining good hygiene, especially sanitizing hands, is likely to continue to encourage consumers to purchase soaps and sanitizers. Meanwhile, the industry players are at risk of increased competition due to the availability of alternate products in the markets. With the rise in competition , players remain focused on actively coming up with hygiene campaigns, which are anticipated to promote their products and expand their customer bases.
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. Investments in innovation, product portfolio and digital capabilities have been the key to driving sales of companies. Additionally, 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 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. Consumer goods companies are also undertaking pricing and productivity efforts to counter inflation, which are likely to continue.
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 #234, which places it in the bottom 7% 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 2022 have declined 10.1%.
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 is worth taking a look at the industry’s performance and current valuation.
Industry Vs. Broader Market
The Zacks Soap and Cleaning Materials industry has outperformed the S&P 500 index in the past year. However, it has lagged the broader Zacks Consumer Staples sector in the same period.
The industry has lost 7.2% in the past year, whereas the S&P 500 and the broader sector have declined 14.4% and 6.3%, respectively.
One-Year Price Performance
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 21.68X compared with the S&P 500’s 16.92X and the sector’s 18.59X.
Over the past five years, the industry has traded as high as 25.13X and as low as 17.56X, the median being 22.04X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
3 Stocks to Keep a Close Eye on
Henkel: The Germany-based consumer goods company engages in adhesive technologies, beauty care, and laundry and home care businesses worldwide. The company has been benefiting from the progress in implementing the purposeful growth agenda and merging the consumer businesses into Henkel Consumer Brands. By combining the Laundry & Home Care and Beauty Care consumer businesses into Henkel Consumer Brands, HENKY expects to broaden its customer base and optimize its portfolio to deliver higher growth, while improving its margin profile. The company has been witnessing robust organic sales growth, driven by strength across all business units and regions.
Henkel looks poised to gain from significant price increases, strict cost management and further efficiency improvements, which are likely to offset the effects of input cost inflation. The Zacks Consensus Estimate for HENKY’s 2022 sales indicates a year-over-year rise of 2.8%. The consensus mark for earnings suggests a decline of 27.6% and has been unchanged in the past 30 days. Shares of the Zacks Rank #2 (Buy) company have declined 34.2% in the past year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: HENKY
Reckitt: The consumer goods company engages in health, hygiene and nutrition products in the UK, the United States, China, India, and internationally. The UK-based company’s resilient business is driven by a strong earnings model. Its earnings model has been gaining from a positive mix and outstanding performance from its productivity program, as well as responsible pricing, all of which have been contributing to operating margin growth. The company is on track with its transformation and innovation efforts.
Reckitt remains focused on innovation, which fuels its key growth drivers of penetration and market share optimization. Shares of the Zacks Rank #2 company have declined 8.6% in a year. The Zacks Consensus Estimate for RBGLY’s 2022 earnings indicates a year-over-year improvement of 1.3%, while the sales estimate suggests a decline of 5%. The consensus mark has been unchanged in the past 30 days.
Price and Consensus: RBGLY
Colgate-Palmolive: Colgate’s business comprises strategy 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, including Naturals toothpaste. Growth in volumes, higher pricing and investments in premium innovation and digital transformation have been the 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. We note that the Zacks Consensus Estimate for CL’s 2022 earnings indicates a year-over-year decline of 5.6%, while the consensus mark for sales suggests 3.3% growth. The consensus mark has been unchanged in the past 30 days. Shares of the leading oral care company have risen 1.7% in the past year. The company currently has a Zacks Rank #3 (Hold).
Price and Consensus: CL
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Colgate Palmolive Company (CL) : Free Stock Analysis Report
Reckitt Benckiser Group PLC (RBGLY) : Free Stock Analysis Report
Henkel AG & Co. (HENKY) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research