Months ago, I predicted that the consumer-staples sector would house the market's most reliable dividend payers for years to come. I also argued that there was further room for shares to appreciate in 2010, following no-brainer gains in 2009.
I stand behind those views, but it's now clear that soon-to-be released first-quarter results could surprise on the company level, even if broad consumer trends remain mostly unchanged.
Let's begin with the potential surprises.
Leaders losing ground?
When it comes to products that help consumers keep their pearly whites pearly white, premium-brand oral-care specialist Colgate-Palmolive
That said, the Nielsen figures don’t cover the full range of Colgate's geographic markets. So for the time being, I'm withholding concern. Plus, overall company sales advanced nearly 2% in March.
A potentially more troubling Nielsen data point involves one of my sector favorites, Church & Dwight
Improved margins from Church & Dwight's new laundry manufacturing facility likely pushed first-quarter profit higher, but even so, I am feeling anxious about top-line growth.
Main Street still hungry for discounts
So if Church & Dwight hasn't recently gained market share in detergents, who has? Procter & Gamble
In March, the hulking industry giant gained a full share point sequentially, having recently discounted Era and Cheer detergents by 5% to more than 10%.
While that move reflects a strategy change that P&G first initiated in fall 2009, its success shows that consumers remain focused on value. The takeaway for companies? Bring down prices, maintain product quality, win over consumers. Notice, however, that that equation says nothing about profit growth, which is why I expect cost-cutting and supply-chain efficiency to remain conference-call buzzwords for the foreseeable future.
Regarding other now-familiar trends, it appears that brand-name appeal continues to vary according to product category. For instance, investment banking and brokerage house Jefferies recently noted that Clorox's
It's all relative
In terms of year-over-year comparisons, Consumer Edge Research estimates that Q1 consumer-staples product volume and organic sales growth will lag the gains of early 2008 -- a key benchmark that delineates pre- and post-recession performance.
Moreover, companies such as PepsiCo
Nonetheless, for the most part, private-label market share looks to have peaked at the end of 2009. In other words, brand-name companies could soon feel a slight boost, which in turn may modestly dampen the store-brand sales growth recently enjoyed by names such as Kroger
Ultimately, as long as the consumer-staples sector continues to post positive growth -- regardless of exact magnitude -- I believe that there's room for price-to-earnings multiple expansion. And that's especially likely if cyclical and financial stocks lose their luster.
Of course, if we have another liquidity crisis, then all bets are off, and I'll see you at the local fruit-canning workshop.
Clorox, PepsiCo, and Procter & Gamble are Motley Fool Income Investor picks. Motley Fool Options has recommended a "roll your diagonal call" position on PepsiCo. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletter services free for 30 days.