Newell Rubbermaid Inc. (NWL), The Clorox Co (CLX), The Procter & Gamble Company (PG): Understanding Recent Poor Performance of Consumer Goods Sector

A glimpse of the companies

As already mentioned, The Clorox Co (NYSE:CLX)’s management blamed the weather for their earnings miss. Given this quarter’s top-line and EPS miss, it was surprising to see Clorox shares down only -1.4% on earnings day (vs. S&P -0.9%), particularly as organic revenues fell short in each reported division. Clorox’s revenue trends are often predicated on comparables, with one year’s positives becoming the next year’s negatives. Such was the case again this quarter as the combination of strong base period sales of Charcoal (in 1Q12 due to warmer weather and early merchandising by a large retailer) and a colder 1Q13 (a -20% decline in Charcoal volume in the month of March alone) led to a -1.5 pt drag on total company volumes (ultimately creating an easier comp in 1Q14).

In any event, with The Clorox Co (NYSE:CLX) shares now trading at 19.3x the 2013 EPS estimate of $4.41, in line with its Large-Cap Household & Personal Care peers, despite below-peer earnings growth, it seems difficult to see much appreciation from here.

Newell is rated as a buy

With better-than-expected organic growth in two of the company’s three “Win Bigger” businesses and the management reaffirming guidance for 2013 despite dilution from non-core disposals, Newell Rubbermaid Inc. (NYSE:NWL) is already demonstrating the viability of its Global Growth Game Plan. Specifically, early investments in the segments & geographies that matter most are accelerating growth while flexibility from Project Renewal savings provides a cushion to the bottom line. It is this increased visibility on the bottom line, coupled with the revenue potential embedded in the company’s long-term strategy that keeps the Street bullish on Newell Rubbermaid Inc. (NYSE:NWL).

P&G disappointed its investors

With disappointing organic sales growth despite an improvement in market share momentum, we can understand why PG shares underperformed the market yesterday. To be sure, with Staples valuations having reached near historic levels over the past couple of months, the bigger question will be whether or not The Procter & Gamble Company (NYSE:PG)’s commentary on the more challenging macro environment is the beginning of a trend or a one-off event. Either way, we would expect The Procter & Gamble Company (NYSE:PG) shares to take a breather until the company is able to show a marked acceleration in top-line growth.

Final word

Among several other themes, an unfavorable weather proved to be a reason for many companies to justify their earnings and revenue misses. However, it was interesting to note that hardly any company blamed a sluggish macro environment as the reason for poor results, something that the analysts hadn’t expected. On an overall note, there are still some companies like Newell Rubbermaid Inc. (NYSE:NWL) in this space that despite unfavorable macro conditions are poised to grow given their secular growth themes.

The article Understanding Recent Poor Performance of Consumer Goods Sector originally appeared on and is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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