Despite the blues of high inflation and the Fed’s aggressive interest rate hikes for over a year and a half, the consumer goods sector fared well. Keeping this in mind, it could be wise to buy top-rated consumer stocks Kimberly-Clark de México, S. A. B. de C. V. (KCDMY), Ennis, Inc. (EBF), and Acme United Corporation (ACU) to add a defensive layer to your portfolio.
But before divulging the fundamentals of these stocks, let’s look at a few factors shaping the consumer industry’s prospects.
In June, inflation experienced its slowest growth in over two years, which indicates that the Fed is progressing toward achieving its target benchmark rate of 2%. Further, the Federal Reserve’s preferred inflation gauge bolstered further signs of cooling while consumers kept the U.S. economic engine running.
The Personal Consumption Expenditures (PCE) price index rose 3% year-over-year in June, marking a decrease from the 3.8% pace in May. Moreover, these figures bode well for the consumer goods sector, as they can lead to increased consumer spending and greater purchasing power.
The projected value added in the consumer goods market is expected to reach approximately $3.08 trillion by 2023 and grow at a 3.3% CAGR over the next five years.
Dominant forces-changing faces of the consumer, such as geopolitical dynamics, new patterns of personal consumption, technological advancement, and structural industry shifts, which are set to change in this sector over the following decades.
Additionally, the growth in urbanization should significantly contribute to the consumer goods industry. In light of this, the global FMCG (Fast Moving Consumer Goods) market is forecasted to grow at a CAGR of 5.1% to reach $18.94 trillion by 2031.
Therefore, investing in consumer companies that offer essential goods and services can mitigate your portfolio risks as they enjoy an inelastic demand for their offerings, making them more resilient to market volatility. Furthermore, the sector’s steadiness is evident from the Consumer Staples Select Sector SPDR Fund ETF’s (XLP) 6.1% over the past nine months.
To that end, let’s discuss the above-mentioned stocks in detail.
Kimberly-Clark de México, S. A. B. de C. V. (KCDMY)
Based in Mexico City, Mexico, KCDMY manufactures and markets disposable and personal care products. Its offerings include baby diapers, training pants, swim pants, wet wipes, shampoos, creams, bar soaps, feminine pads, tampons, sprays, repellents, and more.
The company’s annual dividend rate of $0.44 translates to a dividend yield of 3.94% on the current prices, while its four-year average yield is 4.81%. The company’s dividend payouts have grown at a CAGR of 6% over the past three years.
In the second quarter (ended June 30, 2023), KCDMY’s total revenues increased 6.4% year-over-year to Mex$13.71 billion ($796.44 million) while its gross profit improved 25.9% from the year-ago value to Mex$5.24 billion ($304.40 million). During the same period, its operating profit rose 40.4% from the prior-year quarter to Mex$3.03 billion ($176.02 million).
Also, its net income and EBITDA came in at Mex$1.79 billion ($103.98 million) and Mex$3.51 billion ($203.90 million), representing improvements of 52.8% and 31.2% year-over-year, respectively.
For the fiscal third quarter (ending September 2023), KCDMY’s revenue is expected to increase 19.9% year-over-year to $765.51 million. Further, it is projected to reach $3.25 billion in the fiscal year 2023, registering a year-over-year growth of 21%.
Moreover, its revenue and total assets have grown at CAGRs of 5.3% and 4.6% over the past three years, respectively.
The stock’s trailing-12-month EBIT and net income margins of 20.04% and 11.50% are 179.1% and 231.5% higher than the industry averages of 7.18% and 3.47%, respectively. Likewise, its ROCE, ROTC, and ROTA of 196.40%, 20.51%, and 10.94% compare to the 10.37%, 6.44%, and 4.10% industry averages, respectively.
The stock has gained 41.4% over the past nine months and 59.7% over the past year to close the last trading session at $11.20.
KCDMY’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and B for Growth, Sentiment, and Quality. Among the 54 stocks in the Consumer Goods industry, it is ranked #3. To see additional POWR Ratings for Value and Momentum for KCDMY, click here.
Ennis, Inc. (EBF)
EBF manufactures and sells business forms and other business products in the United States. The company offers snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, pressure-sensitive products, etc.
On July 7, Admore, a subsidiary of EBF, made it to the Promotional Products Association International’s (PPAI) first annual list of the Top 100 Industry Leaders for 2023. Among the leading suppliers in the industry, Admore ranked #49 on the list. This development has put EBF in the top slot and aims to further its endeavor to achieve customer excellence in the future.
On June 2, EBF acquired the operating assets of UMC Print in Overland Park, Kansas. As one of the largest sheet-fed commercial printers in the area, UMC Print’s capabilities serve a wide range of distributors and trade sales organizations across the Midwest and beyond. With this acquisition, EBF could add strategic locations and capabilities to drive growth with their distributor partners.
On May 23, EBF announced the acquisition of the real estate and operational assets of Stylecraft Printing Company located in Canton, Michigan, which focuses on providing business forms, integrated products, and commercial printing services.
Commenting on this, Keith Walters, Chairman, President & CEO of EBF, said, “The addition of Stylecraft expands our product lines and geographical footprint, as well as adds a well-known brand that has been serving the distributor channel for more than 50 years. The acquisition of Stylecraft continues our strategy of adding quality companies to serve our customers and create return for our shareholders.”
During the quarter that ended on May 31, 2023, EBF’s net sales increased 3.4% from the prior-year quarter to $111.29 million, while its gross profit improved marginally year-over-year to $34.04 million. The company’s net earnings increased marginally year-over-year to $11.64 million, while its EPS remained flat year-over-year at $0.45 per share.
Also, its net cash provided by operating activities improved 52.6% year-over-year to $21.73 million. In addition, its total current liabilities stood at $38.38 million, declining 6.9% compared to $41.25 million as of February 28, 2022.
The stock’s trailing-12-month net income and levered FCF margins of 10.86% and 8.99% are 73.9% and 68.7% higher than the industry averages of 6.25% and 5.33%, respectively. Likewise, its trailing-12-month ROTA of 11.95% is 134.3% higher than the industry average of 5.10%.
The consensus revenue estimate of $431.97 million for the fiscal year 2024 (ending February 2024) represents a marginal increase year-over-year. The consensus EPS estimate of $1.72 for the current year indicates a 4.2% improvement year-over-year.
The company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in three of the trailing four quarters.
Also, its EBIT and net income have grown at CAGRs of 11.3% and 12.9% over the past three years, respectively. Likewise, its EPS has increased at a 13% CAGR over the same period.
Over the past three months, the stock has gained 12.4% to close the last trading session at $21.91.
EBF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Quality and a B for Stability and Sentiment. Within the same industry, it is ranked #2. Click here to see the other ratings of EBF for Growth, Value, and Momentum.
Acme United Corporation (ACU)
ACU is a worldwide supplier of innovative cutting, measuring, first aid, and sharpening products to school, home, office, hardware, sporting goods, and industrial markets. The company offers shears, knives, rulers, pencil sharpeners, paper trimmers, safety cutters, etc.
On July 24, it paid a quarterly dividend of $0.14 per share on its outstanding common stock. The company’s annual dividend of $0.56 translates to a 1.85% yield on the prevailing prices, while its four-year average yield is 1.88%. Its dividend payout has grown at a CAGR of 5.3% over the past three years.
For the fiscal second quarter that ended on June 30, 2023, ACU’s net sales amounted to $53.34 million, while its gross profit increased 7.9% year-over-year to $20.02 million. Also, the company’s net income and EPS improved 25.7% and 35.2% from the year-ago values to $3.44 million and $0.96, respectively.
In addition, as of June 30, 2023, its cash and cash equivalents of $3.40 million increased 93.2% from $1.76 million for the period that ended December 31, 2022.
Street expects ACU’s revenue for the current quarter (ending September 2023) to increase 3% year-over-year to $51.24 million, while its EPS is expected to be $0.70 in the same period. Further, its EPS is projected to increase by 10% per annum over the next five years.
Additionally, its revenue has grown at CAGRs of 8.6% and 7.4% over the past three and five years, respectively, while its total assets have increased at a CAGR of 9.4% over the past three years.
ACU’s trailing-12-month gross profit margin and asset turnover ratio of 34.37% and 1.14x are 14% and 43.2% higher than the industry averages of 30.14% and 0.79x, respectively.
ACU’s shares have gained 26.2% over the past six months and 38.5% year-to-date to close the last trading session at $30.32.
It’s no surprise that ACU has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Growth, Value, and Stability. Out of 54 stocks in the same industry, it is ranked #1.
In addition to the POWR Ratings we’ve stated above, we also have ACU’s ratings for Momentum and Quality. Get all ACU ratings here.
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KCDMY shares were trading at $11.29 per share on Friday afternoon, up $0.09 (+0.76%). Year-to-date, KCDMY has gained 36.71%, versus a 18.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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