Consumer staples industry has been witnessing a steady rise in demand and prices since the beginning of the COVID-19 pandemic last year, in-part owing to panic shopping. While the mass coronavirus vaccination drive has minimized panic purchasing, the inelastic nature of demand for consumer staples is helping companies in the sector perform well. With U.S. unemployment hitting a four-month low last week, and with a $1.9 trillion direct recovery bill approved by the Congress, aggregate spending rates in the sector have been reviving rapidly.
As a result, inflation has been increasing over the past month, rising 30 basis points to 1.7% in February 2021. According to the U.S. Labor Department’s Bureau of Labor Statistics’ (BLS) latest report, average price of food in the U.S. rose 3.6% in the 12 months ended February, 2021. While rising inflation could lead to a downturn for many businesses, its impact is not expected to be significant for consumer staples companies, given the non-cyclical nature of the industry.
So, we think established companies Nestlé S.A. (NSRGY), Altria Group, Inc. (MO) and Albertsons Companies, Inc. (ACI) should continue to thrive in the near term.
Click here to checkout our Retail Industry Report for 2021
Nestle S.A. (NSRGY)
Headquartered in Vevey, Switzerland NSRGY is one of the world’s top food and beverage companies. The company's products include milk, chocolate, confectionery, bottled water, coffee, creamer, food seasoning and pet foods. NSRGY’s operational segments include Zone Americas (AMS), Zone Europe, Middle East, and North Africa (EMENA), Zone Asia, Oceania, and sub-Saharan Africa (AOA), Nestle Waters, Nestle Nutrition and Other businesses.
The company announced today that it will introduce bio-based lids and scoops made from sugar cane and its byproducts for a range of its nutrition products for infants and children. NSRGY acquired Essentia Water in March. The company’s Nestlé Japan launched a range of Nescafé lattes in February, which are crafted with plant-based ingredients to meet the rapidly growing interest in plant-based food in Japan. The company also announced in February that it will be launching a new vegan KitKat called KitKat V later this year.
NSRGY’s organic growth has increased 3.6% year-over-year, with real internal growth (RIG) of 3.2% year-over-year for its fiscal year 2020, ended December 31 This was primarily driven by strong momentum in America, Purina PetCare and Nestlé Health Science. Its underlying trading operating profit (UTOP) margin was 17.7%, up 10 basis points on a reported basis, and its trading operating profit (TOP) margin increased by 210 basis points to 16.9% on a reported basis. Its EPS remained unchanged and came in at CHF 4.30.
A consensus EPS estimate of $4.86 for its fiscal year 2021, ending December 31, 2021, represents an improvement of 3.7% year-over-year. Also, a consensus revenue estimate of $93.16 billion for its fiscal year 2022, ending December 31, 2022, represents a 3.5% gain on a year-over-year basis.
The stock has gained 15.9% over the past year and closed Friday’s trading session at $107.95.
NSRGY’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock has a B grade for Stability and Quality. We have also rated NSRGY for Growth, Value, Momentum and Sentiment. Click here to access all NSRGY’s ratings.
NSRGY is ranked #23 of 82 stocks in the B-rated Food Makers industry.
Altria Group, Inc. (MO)
Based in Richmond, Virginia MO manufactures and sells cigarettes, oral tobacco products, and wine in the United States. The company operates primarily through its brands — Marlboro, Black & Mild brand, Copenhagen, Skoal, Red Seal, and Husky. It sells its tobacco products mainly to wholesalers, including distributors and large retail organizations, such as chain stores. MO also produces and sells varietal and blended table wines and sparkling wines through its Chateau Ste brand.
The company’s board of directors has declared a regular quarterly dividend of $0.86 per share payable on April 30, 2021. MO announced in December that it had been awarded a double ‘A’ rating by CDP, a non-profit that runs a global disclosure system on managing environmental impact, for tackling climate change and protecting water security.
Furthermore, last December, the U.S. Food and Drug Administration (FDA) authorized the commercialization of the next generation of the IQOS tobacco heating system device — IQOS 3 — which was submitted for review by Philip Morris International Inc. (PM). MO’s Philip Morris USA (PM USA) under an exclusive agreement with PM, commercializes the IQOS system in the U.S. with three HeatStick variants.
The company’s net revenue has increased 4.9% year-over-year to $6.30 billion for the fourth quarter ended December 31. Its gross profit has increased 2% year-over-year to $3.15 billion. MO’s operating income was $2.58 billion, which represents an improvement of 6.3% year-over-year. Its net earnings were $1.92 billion compared to a net loss of $1.81 billion for the fourth quarter of 2019. Its adjusted EPS came in at $0.99.
A consensus EPS estimate of $1.18 for the next quarter, ending June 30, 2021, represents an improvement of 8.3% year-over-year. MO surpassed consensus EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $5.37 billion for the quarter ending June 30, 2021 represents a 6.5% gain on a year-over-year basis.
The stock has gained 33.6% over the past year and closed Friday’s trading session at $48.65.
It’s no surprise that MO has an overall rating of B, which equates to Buy in our POWR Ratings system. The stock has an A grade for Quality and a B grade for Growth and Momentum. Click here to see the additional ratings for MO (Value, Stability and Sentiment).
Of 11 stocks in the A-rated Tobacco industry, MO is ranked #5.
Albertsons Companies, Inc. (ACI)
Headquartered in Boise, Idaho ACI is one of the largest foods and drug retailers in the United States. Its stores offer grocery products, general merchandise, health and beauty care products, pharmacy, and fuel, among others. The company also provides a set of digital offerings, including home deliveries, click and collect store pickup and online prescription refills.
On March 9, ACI announced that more than one million doses of COVID-19 vaccine have been administered to Americans nationwide through its pharmacy teams. Also in March, ACI partnered up with Tortoise, an automated logistics company focused on last-mile solutions, to pilot its remote-controlled zero-emission delivery cart in Northern California. In January, the company also became the first American grocer to pilot an automated and contactless grocery Pickup kiosk, in its Jewel-Osco stores in Chicago.
ACI’s net sales and other revenue has increased 9.3% year-over-year to $15.41 billion for its fiscal 2020 third quarter, ended December 5, 2020. Its gross profit has increased 12.9% year-over-year to $4.51 billion. ACI’s operating income was $258.50 million, which represents an improvement of more than 25% year-over-year. And its adjusted net income was $386.60 million, up 171.9% year-over-year, while its adjusted EPS came in at $0.66, up 175% year-over-year.
ACI’s EPS is expected to increase at a rate of 19.1% per annum over the next five years. The company surpassed consensus EPS estimates in three of the trailing four quarters. A consensus revenue estimate of $69.48 billion for its fiscal 2021 represents a 11.3% gain on a year-over-year basis.
The stock has gained 29.8% over the past six months and closed Friday’s trading session at $18.37.
ACI’s POWR Ratings reflect this promising outlook. The stock has an overall A, which equates to Strong Buy in our proprietary rating system.
The stock also has an A grade for Value and a B grade for Growth, Sentiment and Quality. In addition to the POWR Ratings grades I’ve just highlighted, you can see ACI’s ratings for Stability and Momentum here.
ACI is ranked #5 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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NSRGY shares were trading at $107.79 per share on Monday afternoon, down $0.16 (-0.15%). Year-to-date, NSRGY has declined -8.50%, versus a 5.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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