The rise in consumer spending bolsters the growth of the consumer staples sector. Meanwhile, the defensive nature of consumer staples makes them a reliable choice for risk-averse investors looking for a safe haven to protect their capital and minimize their portfolio risk during adverse economic conditions.
Given the industry's robust growth prospects, investors can not only reduce risk but enjoy capital gains. Therefore, defensive investors could consider buying fundamentally strong consumer staples stocks such as Procter & Gamble Company (PG), Unilever PLC (UL), and Colgate-Palmolive Company (CL).
Consumer staples are essential in nature as they are daily products consumers need, such as food, household goods, and personal care products. Due to their defensive nature, these stocks are considered safe bets for risk-averse investors. Their consistent demand ensures stable revenues and cash flows for consumer staples companies, making them less susceptible to market volatility.
Consumers are more likely to prioritize purchasing essential goods over discretionary items during economic uncertainty. Moreover, given their strong brand recognition and customer loyalty, they can provide a competitive edge even during challenging times, which makes them attractive investments for investors seeking stability and predictability.
In recent years, the consumer goods sector has gained momentum amid digitalization, as it has changed consumers’ shopping methods and brand advertisements. Due to the rapid increase in digital platforms, consumers seek a personalized experience, thus boosting the industry’s growth.
Robust consumer spending is driving the industry’s growth. Consumer spending hit an all-time high of $15.66 trillion in the first quarter of 2024. The consumer packaged goods industry is predicted to reach $18.94 trillion by 2031, exhibiting a 5.1% CAGR.
Considering these conducive trends, let’s examine the fundamentals of the three featured Consumer Goods stocks, starting with the third in line.
Stock #3: The Procter & Gamble Company (PG)
PG provides branded consumer packaged goods worldwide. It operates through five segments: Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care.
PG’s trailing-12-month CAPEX / Sales of 3.89% is 17.5% higher than the industry average of 3.31%. Similarly, its trailing-12-month EBIT margin and net income margin of 25.43% and 17.99% are 174.7% and 264.6% higher than the industry averages of 9.26% and 4.94%, respectively.
PG’s net sales for the fiscal third quarter that ended March 31, 2024, increased marginally year-over-year to $20.20 billion. Its non-GAAP gross profit stood at $10.35 billion. In addition, its non-GAAP net earnings attributable to PG amounted to $3.76 billion. Also, its non-GAAP net earnings per common share came in at $1.52.
Analysts expect PG’s revenue for the quarter ending June 30, 2024, to increase 1.7% year-over-year to $20.91 billion. Its EPS for the quarter ending September 30, 2024, is expected to rise 5.9% year-over-year to $1.94.
The company surpassed the Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past six months, the stock has gained 14.9%, closing the last trading session at $167.48.
PG’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
PG has an A grade for Stability and a B for Sentiment and Quality. It is ranked #17 out of 51 stocks in the B-rated Consumer Goods industry. Click here to see PG’s Growth, Value, and Momentum ratings.
Stock #2: Unilever PLC (UL)
Headquartered in London, the United Kingdom, UL operates as a fast-moving consumer goods company in the Asia Pacific, Africa, the Americas, and Europe. It operates through five segments: Beauty & Wellbeing, Personal Care, Home Care, Nutrition, and Ice Cream.
On April 17, 2024, UL announced the launching of a new, science-backed innovation under its Dirt Is Good brand, which includes Persil, OMO, and Skip. UL used cutting-edge robotics and AI to develop Wonder Wash, a laundry detergent designed for outstanding performance even in a 15-minute cycle.
UL has completely ‘rebuilt’ a laundry detergent to address new consumer needs and save on energy costs.
UL’s trailing-12-month levered FCF margin of 9.97% is 71.8% higher than the industry average of 5.81%. Likewise, its trailing-12-month Return on Total Capital and Return on Total Assets of 12.39% and 8.62% are 79.2% and 87.2% higher than the industry averages of 6.92% and 4.60%, respectively.
For the fiscal year that ended December 31, 2023, UL’s turnover stood at €59.60 billion ($75.88 billion). Moreover, its underlying operating profit rose 2.6% year-over-year to €9.93 billion ($12.64 billion). Its underlying profit attributable to shareholders equity grew marginally over the previous year to €6.59 billion ($8.39 billion).
For the same year, its underlying EPS increased 1.2% from the year-ago value to €2.60.
Street expects UL’s fiscal 2024 EPS to increase 3.4% year-over-year to $2.90. Its revenue for the quarter ending September 30, 2024, is expected to rise 3.5% year-over-year to $16.66 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters. UL has gained 17.4% over the past six months, closing the last trading session at $55.59.
UL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Stability and Sentiment. It is ranked #13 in the same industry. Get UL’s Growth, Value, Momentum, and Quality ratings here.
Stock #1: Colgate-Palmolive Company (CL)
CL manufactures and sells consumer products in the U.S. and internationally. It operates through two segments: Oral, Personal and Home Care, and Pet Nutrition.
CL’s trailing-12-month Return on Common Equity of 2,331.25% is considerably higher than the industry average of 11.14%. Its trailing-12-month gross profit margin and EBITDA margin of 59% and 23.82% are 67.6% and 86.3% higher than the industry averages of 35.20% and 12.79%, respectively.
CL’s net sales for the fiscal first quarter that ended March 31, 2024, amounted to $5.07 billion, up 6.2% year-over-year. Its non-GAAP operating profit grew 15.3% from the year-ago quarter to $1.08 billion. In addition, its non-GAAP net income attributable to CL stood at $713 million and $0.86 per share, up 17.3% and 17.8% over the prior-year quarter, respectively.
For the quarter ending June 30, 2024, CL’s revenue and EPS are expected to increase 4% and 12.5% year-over-year to $5.02 billion and $0.87, respectively. It surpassed consensus revenue and EPS estimates in each of the trailing four quarters. The stock has gained 27.1% over the past nine months to close the last trading session at $93.96.
CL’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
CL has an A grade for Quality and a B for Stability. Within the Consumer Goods industry, it is ranked #7. Click here for the additional POWR Ratings of CL (Growth, Value, Momentum, and Sentiment).
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PG shares were trading at $166.29 per share on Wednesday morning, down $1.19 (-0.71%). Year-to-date, PG has gained 14.93%, versus a 14.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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