Despite economic cycles causing fluctuations in consumer spending, the consumer industry exhibits greater resilience than other industries. Even in challenging economic conditions, individuals consistently allocate funds to essential items, offering a degree of stability to investments centered around consumer goods and services.
Given this backdrop, it could be wise to load up the shares of three fundamentally sound companies, Henkel AG & Co. KGaA (HENKY), Ennis, Inc. (EBF), and Acme United Corporation (ACU), which seem well-equipped to capitalize on the industry’s resilience.
Despite the challenges posed by elevated inflation and the Federal Reserve's persistent series of interest rate hikes for more than a year, the consumer goods sector has managed to perform admirably.
Moreover, most recent data showed that inflation has substantially receded from its peak levels in mid-2022. July's Consumer Price Index (CPI) witnessed a 3.2% rise in year-over-year comparisons, lower than analyst expectations. This indicates the Fed’s significant progress in its efforts to achieve the targeted benchmark rate of 2%.
Also, the data hold positive implications for the consumer goods sector, potentially resulting in heightened consumer spending and improved purchasing power. The Commerce Department’s advanced retail sales report showed a seasonally adjusted increase of 0.7% for July, better than the estimated 0.4%.
Additionally, projections indicate that the value added within the consumer goods market is set to hit $3 trillion by 2023, expanding at an anticipated CAGR of 3.2% over the next five years.
Considering the optimistic backdrop, the consumer industry should stay afloat despite macroeconomic challenges. Thus, investors could consider buying consumer stocks HENKY, EBF, and ACU.
Let us delve deeper into the fundamentals of the aforementioned stocks in detail:
Henkel AG & Co. KGaA (HENKY)
Headquartered in Düsseldorf, Germany, HENKY and its subsidiaries engage in adhesive technologies, beauty care, and laundry and home care businesses worldwide.
On July 31, HENKY announced the expansion of its range of offerings for medical wearables within the realm of healthcare applications. This expansion reflects the company's adept utilization of its distinctive capabilities and an extensive assortment of high-performance materials tailored to cater to a diverse range of wearable application categories across the entire value chain.
On June 8, HENKY marked the commencement of construction for a novel manufacturing facility under its Adhesive Technologies business arm, situated in the Yantai Chemical Industry Park in Shandong Province, China.
Boasting an investment of roughly €120 million ($130.42 million), the upcoming plant, named ‘Kunpeng' in Chinese, is expected to bolster HENKY's output capacity for high-impact adhesive offerings within China. Also, the facility's establishment is designed to cater to the escalating demand from domestic and global markets and optimize HENKY’s supply network for enhanced efficiency.
For the six-month period, which ended on June 30, 2023, HENKY’s sales increased marginally year-over-year to €10.93 billion ($11.88 billion). Its adjusted operating profit rose 7.6% from the year-ago value to €1.25 billion ($1.39 billion).
In addition, the company’s attributable adjusted net earnings improved 6.5% year-over-year to €894 million ($971.63 million). While its adjusted earnings per share came in at €2.13, up 9.2% year-over-year.
Analysts expect HENKY’s revenue for the third quarter (ending September 2023) to be $5.87 billion, while its revenue for fiscal 2023 (ending December 2023) is projected to be $24.45 billion.
Moreover, its revenue has grown at CAGRs of 4.7% and 2.5% over the past three and five years, respectively. The stock has gained 7.8% year-to-date and 7% over the past nine months to close the last trading session at $17.39.
HENKY’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 Quality. Among the 56 stocks in the Consumer Goods industry, it is ranked #2. To see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for HENKY, 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 June 2, EBF acquired the operational assets of UMC Print located in Overland Park, Kansas. As one of the major sheet-fed commercial printers in the region, UMC Print offers a diverse range of capabilities that cater to distributors and trade sales organizations across the Midwest and other areas. This acquisition reflects the EBF’s dedication to enhancing 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 rose marginally year-over-year to $11.64 million, while its EPS remained flat year-over-year at $0.45 per share. 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 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. Moreover, the company has an impressive earnings surprise history, surpassing 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 5.4% to close the last trading session at $21.48.
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 #3. 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, ACU paid its shareholders a quarterly dividend of $0.14 per share on its outstanding common stock. The company’s annual dividend of $0.56 translates to a 1.84% yield on the prevailing prices, while its four-year average yield is 1.87%. Its dividend payout has grown at a CAGR of 5.3% over the past three years.
In 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, its operating income amounted to $5.25 million, up 32% from the prior-year quarter.
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. Moreover, its cash and cash equivalents came in at $3.40 million, increasing 93.2% compared to $1.76 million as of 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 and levered FCF have increased at CAGRs of 9.4% and 26.5% over the past three years, respectively.
ACU’s shares have gained 39.1% year-to-date to close the last trading session at $30.46.
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 56 stocks in the same industry, it is ranked first.
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.
What To Do Next?
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HENKY shares were trading at $17.30 per share on Monday afternoon, down $0.09 (-0.52%). Year-to-date, HENKY has gained 9.24%, versus a 14.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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