Sales and margin headwinds affected financials
Stocks of household and personal care product manufacturers fell significantly in the first half of 2018, with most companies in the space registering double-digit declines. Aggressive inventory management by retailers, private label products gaining shelf space, price investments, and macroeconomic concerns in several markets remained a drag on these companies’ financials.
Increased manufacturing and distribution costs, driven by inflation in commodities and logistics costs, promotional spending, and business reinvestments to support innovation, also took a toll on their margins.
The graph above shows that Coty (COTY) stock fell the most (-29.1%) in the first six months of 2018. Procter & Gamble (PG), Colgate-Palmolive (CL), Kimberly-Clark (KMB), and Clorox (CLX) stock fell 15%, 14.1%, 12.7%, and 9.1%, respectively.
Signs of recovery
Recently, stocks of these consumer packaged goods makers have shown signs of improvement, with Clorox stock gaining significantly in the past month. Investors anticipate that these companies will most likely take pricing actions amid rising costs, which could support their organic sales growth rate and cushion their margins. Innovation-led product launches, cost and productivity savings, and lower taxes could also support these companies’ financials.
However, given the heightened competitive environment among retailers and a growing share of private label products, it may not be easy to pass through pricing.