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Jun 19, 2023

4 Soaps & Cleaning Materials Stocks to Gain as Industry Catches On

Players in the Zacks Soap and Cleaning Materials industry have been benefiting from solid demand for consumer products and brands, strong operational execution and expansion into new markets. Robust

Players in the Zacks Soap and Cleaning Materials industry have been benefiting from solid demand for consumer products and brands, strong operational execution and expansion into new markets. Robust pricing initiatives have been vital in boosting sales for industry participants. The companies remain focused on digital commerce growth, product innovation and brand building strategies.

Nevertheless, the companies continue to toil with headwinds related to higher manufacturing and logistic costs, increased commodity costs, and lower volume. Also, elevated advertising and sales promotion spending have been denting profitability. Companies like Unilever PLC UL, Church & Dwight Co., Inc. CHD, The Procter & Gamble Company PG and Colgate-Palmolive CL have resorted to cost-curtailment actions to counter cost inflation.

About the Industry

Companies manufacturing and supplying fast-moving consumer goods, 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 ones mentioned above. A few players 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, pet stores and websites.

What's Shaping the Future of the Soaps & Cleaning Materials Industry

Favorable Demand & Pricing Actions: The soaps and cleaning materials industry has been experiencing revived demand trends across markets. The industry participants have been benefiting from solid demand for products and brands, stemming from continued brand relevance. Gains from robust pricing actions and revenue management initiatives are also driving organic sales for several industry players. The companies have been adopting bold pricing initiatives across markets to combat rising costs due to the persistence of inflation, higher freight and currency woes. The cost-based pricing actions have been boosting the margin and profitability of several industry players.Product Innovation & Strategic Efforts: The companies frequently invest in product development to cater to the consumers’ changing needs. Investments in innovation, product portfolio and digital capabilities have been the key to driving companies' sales in the soaps and cleaning products space. Players have been undertaking pricing, packaging, marketing initiatives and restructuring actions, including acquisitions and divestitures. Companies also remain focused on expanding into new markets and channels. Developing products with eco-friendly and natural ingredients is another area of focus among industry players, as consumers increasingly prefer environment-friendly ingredients in their daily use items. The increase in popularity of online shopping, particularly after the pandemic, has been another key sales driver for the industry participants. This has led the companies to constantly step up their efforts in the e-commerce arena through improved delivery and payment systems. Consumer goods companies are also undertaking productivity and cost-saving plans to boost margins.Rising Costs a Concern: The industry participants are experiencing supply-chain disruptions, logistic issues and inflation in raw materials and other expenses, which have been weighing on their margins and profitability. Elevated manufacturing and distribution costs and increased advertising and sales promotion expenses are other factors impacting margins. Also, several companies are subject to higher SG&A expenses due to increased operational costs related to salaries and bonuses and planned investments in digital capabilities and productivity enhancements. Some players focus on cost-containment initiatives, including streamlining the supply chain and minimizing overhead costs to improve margins. Most companies are resorting to price increases to cushion their margins.

Zacks Industry Rank Indicates Robust 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 #36, which places it in the top 14% 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.The industry’s positioning in the top 50% of the Zacks-ranked industries results from a positive aggregate earnings outlook for the constituent companies. Analysts are gaining confidence in this group’s earnings growth potential by looking at the aggregate earnings estimate revisions. The industry’s earnings estimates for 2023 have increased 0.7% year-to-date.We here present a few stocks that one can retain in their portfolio, given their solid growth endeavors. But before that, it is worth looking at the industry’s performance and current valuation.

Industry Vs. Broader Market

The Zacks Soap and Cleaning Materials industry outperformed the broader Zacks Consumer Staples sector but underperformed the S&P 500 index in the past year.The industry has rallied 7.4% in the past year compared with the broader sector’s decline of 0.7% and the S&P 500’s growth of 9.1%, respectively.

Industry's Current Valuation

Based on forward 12-month price-to-earnings (P/E), which is commonly used for valuing Consumer Staples stocks, the industry is currently trading at 22.99X compared with the S&P 500’s 19.79X and the sector’s 18.34X.Over the past five years, the industry has traded as high as 25.13X and as low as 17.95X, the median being 22.29X, as the chart below shows.

4 Stocks to Keep a Close Watch

Unilever: The company is engaged in manufacturing of branded and packaged consumer goods, including food, detergents and personal care products. Unilever has been gaining from growth across product categories including beauty & personal care, home care as well as food and refreshments. Also, the company has been broadening assortments available for online purchasing, while also boosting penetration across markets.The company has been witnessing robust sales growth, driven by strength across all business units. It has been in particular focusing on growth across three key markets, the United States, India, and China. UL is also on track with its cost-saving and productivity initiatives. The Zacks Consensus Estimate for UL’s 2023 sales indicates year-over-year growth of 2.6%. Shares of the Zacks Rank #2 (Buy) company have risen 8.7% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Church & Dwight: The well-known specialty products company has gained from its prudent buyouts, solid innovation and favorable consumption demand. Church & Dwight is optimistic about its 2023 category growth and impressive brand performance. The company is on track with its pricing and productivity efforts to counter cost inflation. The Ewing, NJ-based company is focused on product innovation for further growth.Church & Dwight is focused on making capital investments to expand its factory and supplier network capacity, courtesy of the strength in consumer demand for its products. Its regular innovation helps improve brand positions and market share in the consumer categories. Shares of the Zacks Rank #2 company have gained 9.3% in a year. The Zacks Consensus Estimate for CHD’s 2023 sales and earnings indicates year-over-year growth of 8.1% and 6.1%, respectively. The consensus mark for 2023 earnings has increased by 1.6% in the past 30 days.

Procter & Gamble: The Cincinnati, OH-based consumer goods giant has been benefiting from strength across all segments, coupled with robust volume, pricing and mix. Procter & Gamble’s products play a key role in meeting the daily health, hygiene and cleaning needs of consumers worldwide. The company’s e-commerce sales have been growing globally.Procter & Gamble is focused on productivity and cost-saving plans to boost margins. The company’s continued investments in business, alongside efforts to offset macro cost headwinds and balance top and bottom-line growth, underscore its productivity efforts. It has been witnessing SG&A expense leverage, owing to savings from overhead and marketing expenses and cost leverage gains due to higher sales and real estate. The Zacks Consensus Estimate for PG’s fiscal 2023 sales and earnings indicates 4.6% and 7.8% year-over-year increases, respectively. The consensus mark for its fiscal 2023 earnings has increased 0.5% in the past 30 days. Shares of the Zacks Rank #3 (Hold) company have increased 8.6% in the past year.

Colgate: The Zacks Rank #3 company has been benefiting from solid consumer demand for personal care, hygiene and home care products. Colgate’s focus on innovation and digital transformation, along with its brand strength have been driving its performance. Its focus on the premiumization of its Oral Care portfolio through major innovations has been proving beneficial. Of late, the performance of its premium innovation products, including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste, has been impressive.The company has been aggressively expanding into faster growth channels while extending the geographic footprint of its brands. We note that the Zacks Consensus Estimate for CL’s 2023 sales and earnings indicates year-over-year growth of 7.7% and 6.4%, respectively. The consensus mark for its 2023 earnings has moved up by 0.6% in the past 30 days. Although shares of the leading oral care company have declined 4.8%% in the past year, it has rebounded 3.7% in the past six months.

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