Header cover image

U.S. Consumer Staples Sector Analysis

UpdatedSep 28, 2022
DataAggregated Company Financials
Companies420
  • 7D-3.7%
  • 3M-4.1%
  • 1Y-3.0%
  • YTD-12.7%

The Consumer Staples industry is down 3.7% over the last week with Coca-Cola the worst performer, down 5.9%. Overall the industry is down 3.0% in 12 months. Earnings are forecast to grow by 8.4% annually.

Sector Valuation and Performance

Has the U.S. Consumer Staples Sector valuation changed over the past few years?

DateMarket CapRevenueEarningsPEAbsolute PEPS
Wed, 28 Sep 2022US$2.4tUS$2.2tUS$104.9b18.5x23x1.1x
Fri, 26 Aug 2022US$2.7tUS$2.2tUS$104.4b20x25.6x1.2x
Sun, 24 Jul 2022US$2.6tUS$2.2tUS$104.2b19.4x24.7x1.2x
Tue, 21 Jun 2022US$2.4tUS$2.2tUS$104.6b17.3x22.8x1.1x
Thu, 19 May 2022US$2.6tUS$2.2tUS$103.1b18.9x25.6x1.2x
Sat, 16 Apr 2022US$2.9tUS$2.2tUS$100.2b24.4x28.6x1.3x
Mon, 14 Mar 2022US$2.6tUS$2.2tUS$99.3b22.3x26.3x1.2x
Wed, 09 Feb 2022US$2.8tUS$2.1tUS$92.0b21.5x29.9x1.3x
Fri, 07 Jan 2022US$2.8tUS$2.1tUS$88.4b24x32x1.3x
Sun, 05 Dec 2021US$2.6tUS$2.1tUS$88.2b23x29.9x1.3x
Tue, 02 Nov 2021US$2.7tUS$2.1tUS$90.1b24.2x29.6x1.3x
Thu, 30 Sep 2021US$2.7tUS$2.1tUS$95.1b23.9x28.1x1.3x
Sat, 28 Aug 2021US$2.7tUS$2.1tUS$94.0b20.7x28.9x1.3x
Sun, 04 Jul 2021US$2.7tUS$2.0tUS$93.9b20.7x28.5x1.3x
Wed, 07 Apr 2021US$2.5tUS$2.0tUS$86.4b21.9x29.1x1.3x
Sat, 09 Jan 2021US$2.6tUS$1.9tUS$92.8b20x27.6x1.3x
Fri, 02 Oct 2020US$2.4tUS$1.9tUS$85.0b20.2x27.8x1.3x
Mon, 06 Jul 2020US$2.1tUS$1.8tUS$72.4b20.8x28.7x1.2x
Thu, 09 Apr 2020US$1.9tUS$1.8tUS$68.0b17.2x28.5x1.1x
Wed, 01 Jan 2020US$2.3tUS$1.8tUS$69.0b21.3x32.6x1.3x
Sat, 05 Oct 2019US$2.2tUS$1.8tUS$59.4b22.5x37.1x1.2x
Price to Earnings Ratio

37.1x


Total Market Cap: US$2.2tTotal Earnings: US$59.4bTotal Revenue: US$1.8tTotal Market Cap vs Earnings and Revenue0%0%0%
U.S. Consumer Staples Sector Price to Earnings3Y Average 29.3x202020212022
Current Industry PE
  • Investors are pessimistic on the American Consumer Staples industry, indicating that they anticipate long term growth rates will be lower than they have historically.
  • The industry is trading at a PE ratio of 23.0x which is lower than its 3-year average PE of 29.3x.
  • The 3-year average PS ratio of 1.2x is higher than the industry's current PS ratio of 1.1x.
Past Earnings Growth
  • The earnings for companies in the Consumer Staples industry have grown 21% per year over the last three years.
  • Revenues for these companies have grown 7.9% per year.
  • This means that more sales are being generated by these companies overall, and subsequently their profits are increasing too.

Industry Trends

Which industries have driven the changes within the U.S. Consumer Staples sector?

US Market-5.79%
Consumer Staples-3.70%
Food-2.74%
Food and Staples Retail-3.62%
Beverage-3.92%
Household Products-3.96%
Personal Products-6.07%
Tobacco-11.75%
Industry PE
  • Investors are most optimistic about the Personal Products industry which is trading above its 3-year average PE ratio.
    • Analysts are expecting annual earnings growth of 14.8%, which is higher than its past year's earnings decline of 4.8% per year.
  • Investors are most pessimistic about the Tobacco industry, although it looks like investor sentiment has improved given that it's trading above its 3-year average.
Forecasted Growth
  • Analysts are most optimistic on the Tobacco industry, expecting annual earnings growth of 19% over the next 5 years.
  • This is better than its past earnings growth rate of 0.6% per year.
  • In contrast, the Household Products industry is expected to see its earnings grow by 6.0% per year over the next few years.

Top Stock Gainers and Losers

Which companies have driven the market over the last 7 days?

CompanyLast Price7D1YValuation
GIS General MillsUS$77.973.4%
+US$1.4b
31.4%PE16x
FRPT FreshpetUS$45.9615.2%
+US$290.3m
-67.8%PS4.4x
HRL Hormel FoodsUS$46.400.8%
+US$213.0m
12.8%PE25.3x
K KelloggUS$72.000.7%
+US$180.3m
12.5%PE16.5x
CALM Cal-Maine FoodsUS$60.534.0%
+US$113.0m
68.6%PE22.3x
Simply Wall St
Simply Wall Street Pty Ltd
17-21 Bellevue Street, Surry Hills, Sydney
Download on the App StoreGet it on Google Play
Simply Wall Street Pty Ltd (ACN 600 056 611), is a Corporate Authorised Representative (Authorised Representative Number: 467183) of Sanlam Private Wealth Pty Ltd (AFSL No. 337927). Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situation or needs. You should not rely on any advice and/or information contained in this website and before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice. Please read our Financial Services Guide before deciding whether to obtain financial services from us.

Latest News

WMT

US$130.95

Walmart

7D

-1.9%

1Y

-6.8%
Sep 25

Coca-Cola: The Problem With The Bearish Thesis

Summary Coca-Cola has significantly outperformed the market and its peers since I first covered the company. Fears of Coke's premium valuation and inflationary pressures are not substantiated. Best-in-class profitability, strong brands and excellent capital allocation decisions put Coca-Cola among the highest quality businesses in the consumer staples space. Surprisingly or not, the negative sentiment towards consumer staples and Coca-Cola (KO) in particular, has been on the rise in the past months. The predominant narrative is that as we entered a period of higher inflationary pressures, consumer staples will have a harder time dealing with rising costs. Another line of thought is that the largest multinational companies will be most at risk in a world market by deglobalization. In this simplistic bearish thesis, Coca-Cola's premium valuation is yet another 'red flag'. After all, if you have a company that scores poorly on relative valuation and its growth prospects, while at the same time is facing inflationary pressures, then how can you not be bearish on it? Seeking Alpha The Set Up About two years ago, I first wrote about my reasons for being optimistic about Coca-Cola's future. At the time, the pandemic was raging across the globe and lockdowns were still in place. The sentiment around KO was similar to that today, with many market commentators telling us that Coke's business model is now well-positioned for such an environment. As it turns out, however, since my first thought piece on the company, KO outperformed on an absolute basis (not to mention risk-adjusted), both its major peers - PepsiCo (PEP) and KDP (KDP), the consumer staples sector and the broader market as measured by the S&P 500. Data by YCharts So what happened? As many investors were focusing on elevated price-to-earnings multiples and the outside risks, Coca-Cola's management has made an excellent capital allocation move by acquiring Costa Coffee. Of course, all the positives of this acquisition were not plain to see in the short-term, especially with all the lockdowns in place. Coca-Cola Investor Presentation But for anyone with a longer investment horizon, Coca-Cola's capital allocation decisions seemed superior to those of its peers. I go into further detail on all that in the analysis titled 'Coca-Cola: Why Transforming The Business Will Have Profound Implications On Returns'. If you haven't read it, I would highly encourage you to do so at it goes deeper into the topic of capital allocation. Is There Really An Issue? Coca-Cola's premium valuation is largely supported by its industry-leading profitability. That is why, as we see in the graph below, on a historical basis KO price-to-sales multiple moves in unison with the company's net income margin. prepared by the author, using data from SEC Filings In terms of fixed costs, Coke is still way ahead of its peers due to its large international exposure and asset-light business. Even when compared to PepsiCo, Coca-Cola's competitive advantage is obvious. prepared by the author, using data from SEC Filings So far inflation is having a profound impact on margins, however, we should not forget that inflationary readings are backwards looking and prices of key raw materials for KO seem to have already peaked. FRED Of course, it is largely speculative what the future holds, however, Coca-Cola has already partially offset the inflationary hit on margins through pricing actions. Our price/mix of 12% was primarily driven by strategic pricing actions across markets, along with revenue growth management initiatives, further improvement in away-from-home channels in most markets and positive segment mix. Comparable gross margin for the quarter was down approximately 250 basis points versus the prior year, primarily due to the impact of 3 items: one, an upsized increase in costs in the business due to the inflationary environment; two, currency headwinds driven by the volatile macro backdrop; and three, the mechanical effect of consolidating the BODYARMOR finished goods business. John Murphy - CFO Source: Coca-Cola Q2 2022 Earnings Transcript As a matter of fact, the underlying drop in gross profitability due to the unprecedented jump in raw materials has been relatively low. Coca-Cola Q2 2022 Investor Presentation Of course, this does not represent the full impact of the current spot price in commodities as input costs are hedged. Moreover, the truly international nature of KO gives it a significant advantage over its peers that are focused on North America or Europe as inflationary impact varies significantly from country to country. Moreover, Coca-Cola's strong brand portfolio also allows the management to pass a significant proportion of these higher costs on the consumer. We anticipate more cost increases will come through on a broad-based set of inputs. And we will continue locally in each country because it's very different. We will continue to pass those through. James Quincey - Chairman and CEO Source: Coca-Cola Q2 2022 Earnings Transcript

FRPT

US$45.96

Freshpet

7D

15.2%

1Y

-67.8%

K

US$72.00

Kellogg

7D

0.7%

1Y

12.5%
Sep 21

Procter & Gamble Is Likely To Revisit 2022 Lows

Summary P&G is trading below key resistance levels. EPS revisions continue strongly downward. The stock is overpriced given its margin headwinds. Consumer staples stocks were the place to be for the early part of this year. After growth stocks began to unravel in early 2022, more defensive names reigned. That is just about always the case during periods of market turmoil, and 2022 proved to be no different. However, it is my view that we are nearing the end of this bear market, and until I see evidence to the contrary, I'm continuing to position that way. That means I don't see a lot of value in owning defensive names this late in the cycle, as I believe the best way to take advantage of the next bull run is with growth stocks. That leaves perennial dividend favorites like Procter & Gamble (PG) in a place where I don't think they should feature heavily in most investors' portfolios. In this article, we'll look at some of the struggles and successes of P&G, but ultimately, I think the stock is unattractively priced and faces too many headwinds to want to own right now. That was virtually the same the last time I covered P&G, and the stock is roughly flat in the past year and a half. That's better than the S&P over that time, to be fair, but given the outlook for margins and the current valuation, I think P&G has a downward bias for the foreseeable future, especially relative to the broader market. Has Wall Street abandoned P&G? While Wall Street may not have fully abandoned P&G, the below does not have a good look. You'd think a prolonged period of market weakness - like what we've had for 2022 - would produce strong outperformance in consumer staples companies. That simply hasn't been the case, and it's largely because of input cost inflation. More on that below, but the chart looks like a stock that nobody wants to own. StockCharts There are two levels of fairly stout resistance overhead, one at $138 and the next at $141, and given the way this stock has been trading, I think taking those out anytime soon is a tall order. The momentum indicators are bouncing, but quite feebly, and the stock is seeing lower peaks on bounce attempts. This simply does not have a good look, and this is not a chart I would attempt to trade on the long side. One positive note is that P&G is outperforming its peers, as seen in the bottom two panels, but its peer group is weak against the S&P 500. So while P&G is slightly outperforming, it's doing so in a weak group. I won't belabor the point on the chart here, but the bottom line is that the bias for this stock - in my view - is lower until further notice. What about the fundamentals? We're all fully aware of the inflation situation because you cannot get away from commentary and data on it. The situation is unique, given we previously had years and years of persistently low inflation, followed by a sudden skyrocketing of higher prices. That has impacted different companies in different ways, but for companies that make and ship things, it's been doubly tough. P&G certainly fits that bill, but as we'll see, it's seemingly weathering the storm fairly well. Below we have guidance for this fiscal year from management, with the lower bound in blue, the upper bound in black, and the analyst consensus in green. TIKR We can see analysts simply went right in the middle of the range provided by management, but to be fair, P&G's revenue is usually quite easy to forecast given its steady demand. That gives us a good baseline for this year to then look at the out years from a demand perspective. TIKR Consensus estimates for the next few years are for ~4% average annual growth, which again is pretty typical for P&G. One of the things income investors like about P&G is its predictability, and that's one of the things that has afforded it the ability to raise its dividend for more than six decades consecutively. Where things get interesting is when we look at margins, which we have below on a trailing twelve months basis for the past few years. We have gross margins in blue, SG&A costs in green, and operating margins in black. These are the primary components of a company's profitability and give us good insight into whether management is able to effectively price their goods and manage expenses. TIKR Gross margins have been in decline for several quarters, and it would appear that, despite pricing actions being taken, it may be some time before that gets better. Indeed, with freight and input costs - two huge line items for a manufacturer of consumer staples - still very elevated, P&G looks set to struggle with gross margins despite sizable pricing increases. The good news is that P&G owns some of the most recognized and purchased brands in the world, so it's able to push pricing increases through. However, there's a point that will stop working. On the plus side, the company has done a nice job of controlling expenses. We can see SG&A costs have declined from almost 27% of revenue in 2021 to just over 24% on a TTM basis last quarter. That's quite significant, and it has kept operating profits from massive declines due to gross margin contraction. The management team is doing what is necessary to preserve profits, but just like pricing increases, these things have endpoints where more cuts simply aren't an option. Still, I'm impressed by expense management in a difficult environment. If we add these things together - demand via revenue projections, and profitability via margins - we get the below, which is the EPS revision schedule for P&G from its extensive analyst community. Seeking Alpha Unfortunately, this isn't pretty. There have been numerous downward revisions to earnings estimates not only for this year but out years as well. This is the impact of lower margins, because as we saw, revenue is pretty steady with mid-single digit gains each year. This chart is a function of margin headwinds, primarily, and it's not a good story. If you wonder why the stock is being sold and the price chart looks the way it does, I'd point you here. It's very difficult for any stock with persistently downward revisions in earnings to rally and P&G is no exception. Let's value this thing We'll start with the forward P/E ratio for P&G for the past five years to give us some historical context on today's valuation. We can see during this period the stock has ranged between 16X and 27X earnings, but the former was for a brief period almost five years ago. More recently, the stock has been in a tight range of 21X to 25X, for the most part.

Sep 20

One Big Fat Reason To Buy Altria In Light Of Economic Woes

Summary In this article, I start by making the fundamental case for high-yield stocks given the risks of slower economic growth, persistent inflation, and aggressive central banks. Buying (very) high yield comes with risks, which is why buying quality is so important. Altria has reached a very favorable valuation as investors have avoided the stock due to political and JUUL-related risks. The company offers a yield close to 9%, high and sustainable free cash flow, and a low debt load, which is why I believe MO shares are set to outperform. Introduction I'm finally going to cover a stock I didn't expect to cover - probably ever. However, there are good reasons for investors to either own or at least consider buying the cigarette giant Altria Group (MO). If we ignore the 2020 pandemic sell-off that caused dividend yields to soar, Altria is by far the highest-yielding stock on my radar. That's also the reason why I'm covering the company. The market offers opportunities for high-yield investments. Or even more important, it makes investing in high-yield rather important as we're dealing with a mix of high inflation, increasing economic downside risks, and above-average valuations. This is a call for "equity income". I believe that Altria is the one to get this job done thanks to its anti-cyclical business model. In this article, we're going to take a look beyond the yield and discuss why an investor who's usually focused on the "growth" part of dividend growth is now interested in high-yielding cigarettes. So, let's dive into it, starting with the bigger macro picture! Buy Me Some Income While the timing might indicate it, I did not write this article to satisfy the readers I may have made uncomfortable when I wrote that 0.2% yielding Thermo Fisher Scientific (TMO) was one of the best dividend stocks money could buy. On a side note, I highly recommend you take a look if you want my take on why buying very low dividend growth makes sense. No, the reason I'm finally covering Altria is that the ongoing market environment does warrant investments in very high-yielding stocks - as long as it's a quality yield, of course. The first reason is that income is a great way to benefit from the stock market in times of flat-ish capital returns. A prolonged sideways trend would be bad news for the average low-yielding stock. Hence, while I do invest in a lot of low-yielding dividend growth stocks, I try to keep my average portfolio yield close to 2.5%. The other day, Stanley Druckenmiller came out saying there's a high probability that the market remains flat for 10 or more years (see the transcript below, provided by The Transcript on Twitter). Druckenmiller uses the period between 1966 and 1982 as a reference. The Transcript This is what that period looked like: TradingView (S&P 500) Year-on-year inflation looked like this back then: St. Louis Federal Reserve In other words, investors were stuck in a prolonged sideways trend with high inflation and high stock market volatility. Needless to say, that's tough. What this means is that there are good reasons to emphasize income when making investment decisions in this environment. Especially for income growth-oriented investors like myself. One major reason is a tricky stock market valuation. While the S&P 500 valuation has come down to less than 20x earnings, we're not necessarily dealing with a "cheap" market. Multipl.com On the one hand, we have a slowing economy. This is expected to help reduce inflationary risk. On the other hand, it is also expected to hurt the "E" in the P/E ratio - meaning earnings expectations are expected to come down. The most recent data I have (from September 16, 2022) shows that forward EPS estimates for the S&P 500 are still at all-time highs. If history is any indication, these numbers could come down very soon. Bloomberg On top of that, we're dealing with a situation of high inflation, mainly caused by the supply side. In other words, the Fed is now trying to combat high prices in an economic growth-slowing situation. As the Fed cannot impact supply, it is fighting demand. The same goes for major central banks like the European Central Bank, the Bank of England, and the ones in Canada and Australia. As a result, this is what growth expectations are now looking like for 2023: Bloomberg Note that none of the central banks responsible for the regions above are expected to get inflation below 3% at the end of 2023. That's the ugly situation we're in. Slower economic growth, aggressive central banks, and the outlook that it still may not be enough. Let alone the risks of new inflationary waves once demand comes back as I discussed in articles like this one. In other words, the mix of slower global growth, stubborn inflation, and increasingly tight financial conditions are compelling reasons to allocate money to high-income investments. Altria Stands For Quality High Income Based on the theoretical framework we just discussed, this is what the Altria stock price did during the high inflationary period between the late 1960s and the early 1980s: TradingView (MO Stock Price) Comparing the chart above to the S&P 500 chart I showed in the first half of this article, we see that Altria not only provided income but also steady (and high) capital gains. It was truly the perfect way to play a similar situation back then. As a matter of fact, going back to 1986 (that's as far as my data goes back), Altria has returned 17.1% per year, outperforming most tech stocks and high-flying growth stocks, in general. The standard deviation of 25.3% also wasn't that bad as it allowed the company to beat the market on a volatility-adjusted basis as well (Sharpe/Sortino ratios). Portfolio Visualizer The problem is that this outperformance has ended. Over the past 10 years, the stock has returned 8.7% per year, including dividends. That's more than 400 basis points below the S&P 500's return. Over the past 5 years, the annualized return is negative 0.12% versus 11.7% for the S&P 500. Year-to-date, the stock is down 9% excluding dividends. This outperforms the S&P 500 by almost 10 points. The outperformance makes sense for the reasons mentioned in the first half of this article. High inflation, economic uncertainty, and aggressive rate hikes favor high-value stocks over stocks that rely more on their future potential instead of what they bring to the table right now (think of your average growth stocks). FINVIZ Altria is not immune to these factors. High inflation is hurting its customer. The company is seeing people shift from larger cigarette packages to smaller ones, which is accelerating the industry's decline in cigarette volumes. During the twelve months that ended June 30, 2022, the industry witnessed a 7.0% decline, led by macroeconomic factors. The secular decline rate remained at 2.5%. Altria Group As a pack of Marlboros saw a price increase of roughly 5.6%, the company was unable to offset lower sales. In 2Q22, net revenues fell by 5.7%. The good news is that the company sees that inflation in certain areas (like energy) is falling, allowing consumers to switch back to (more) cigarettes. It also helps that tobacco brands enjoy the highest brand loyalty on the market, almost double the loyalty grocery brands and household items enjoy (although Altria does not give specific numbers). On top of that, global tobacco revenue is not expected to witness a serious decline - or any decline whatsoever. Statista While global volumes are expected to decline, the decline is expected to slow, allowing better pricing to maintain a steady top line. Statista The company is also seeing some progress when it comes to dealing with regulatory issues. The FDA received more than 200,000 comments on its proposal to ban menthol in cigarettes. These issues will need to be addressed before taking things to the next step in the rule-making process. Altria (obviously) sees good reasons for the FDA to reconsider the proposal. Moreover, the proposal to make cigarettes less harmful is not something Altria can fight - nor does it want to. Scrolling through its many presentations, business comments, and related materials, Altria is now a company dedicated to slowly but steadily changing its core business model. It sees high growth in oral tobacco. According to Altria: Our approach spans 3 of the most promising smoke-free categories with the potential to reduce harm: oral tobacco, e-vapor and heated tobacco. In oral tobacco, we're encouraged by the growth of the novel oral products, which comprise more than 1/5 of total industry oral tobacco volume in the second quarter. The category grew 6.8 share points year-over-year, with on! representing more than 40% of this growth. In the second quarter, on! reported shipment volume increased nearly 60% versus the year ago period. And on! retail share of oral tobacco increased 8/10 sequentially, reaching 4.9 share points in the second quarter. Unfortunately, the company's investment in JUUL remains a huge issue. In 2Q22, the company recorded a non-cash pretax unrealized loss of $1.2 billion due to a lower estimated fair value of its $12.8 billion investment. The decrease in fair value was driven by several factors including uncertainty created by the FDA's action related to JUUL and uncertainty relating to JUUL's ability to maintain adequate liquidity. As of June 30, our estimated valuation is $450 million, which reflects a range of regulatory, liquidity, and market outcomes. With all of this in mind, Altria is expected to remain the cash cow it is now. In the years ahead, the company is expected to maintain annual free cash flow generation in the low $8 billion range. The chart below also shows that the company is distributing almost all of its free cash to its shareholders. Author And that's terrific news for a number of reasons. First of all, $8.5 billion in free cash flow (2023 estimates) is 11.0% of the company's market cap. As the company has a healthy balance sheet with a net debt ratio of roughly 2.0x EBITDA and a (stable) BBB credit rating, it can (and it does) distribute almost all of its FCF to shareholders. Author Altria is known for its huge dividend. The company currently pays a $0.94 quarterly dividend. That's $3.76 per year or 8.8% of the company's stock price. That's truly wild - and fundamentally backed by high FCF and low debt. After all, that's just as important as the dividend yield as buying a high yield isn't hard. Buying "quality" high-yield is much harder. Compared to its consumer staples peers, the company scores high on dividend consistency and its yield. However, dividend growth isn't bad either. Seeking Alpha Over the past 10 years, the average annual dividend growth rate was 8.1%. Data by YCharts The most "recent" hikes were much lower as 8% annual growth isn't sustainable in Altria's position: August 2022: 4.4% August 2021: 4.7% July 2020: 2.4% However, for new investors, that's OK. Dividend growth is still expected to beat "average" long-term inflation and we're now dealing with a much better yield. Data by YCharts For example, a 2% hike (to go with a random low number) turns an 8.8% yield into a 9.0% yield on cost. That's a 20 basis points difference. This really adds up. Especially if people keep reinvesting. Moreover, additional cash is being distributed via buybacks. Between 2017 and 2021, the company bought back 3.6% of its shares outstanding. Author As the dividend yield may suggest, the valuation isn't half bad either. Valuation Altria is trading at 8.2x 2023E EBITDA of $12.7 billion. This is based on its $103.8 billion implied enterprise value consisting of $77.3 billion in stock market equity, $24.9 billion in 2023E net debt of $24.9 billion, and $1.6 billion in pension-related liabilities.