Will weak consumer spending hurt these profitable consumer goods stocks?

Will weak consumer spending hurt these profitable consumer goods stocks?

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Growth in consumer spending slowed down in May. Can these consumer goods stocks extend rising profits?

The Commerce Department released May consumer spending figures Thursday morning, and the report showed that spending grew 0.2% last month. While better than the 0% gain seen in April,  Bloomberg writes that last month's increase fell short of the 0.4% median estimate. May's rise in spending was also significantly lower than the 0.8% surge reported in March, stoking concerns that the decline in spending could spell a slowdown in what has already been a tepid economy recovery. 

All three major stock indices were down following the news. As of 11:45, The S&P 500 (SPX) fell 7.72 points, or 0.39%, to 1,952, the NASDAQ Composite Index slid 13.99 points, or 0.32%, to 4,366, and the Dow Jones Industrial Average (DJI) dropped 73.46 points, or 0.44%, to 16,794. 

The slow growth in consumer spending inspired us to take a closer look at the profits of US consumer goods stocks. We began with a group of consumer goods stocks, which we then screened for rising diluted normalized earnings per share (EPS) for the past three consecutive years. EPS is the amount of profit each outstanding share of a company's common stock receives, and diluted normalized EPS is lower and more conservative than normalized EPS. 

After assembling that group of profitable consumer goods stocks, we then screened for stocks with encouraging profitability as determined by the DuPont equation. This equation analyzes a company's return on equity (ROE)—how much profit the company has made from shareholder investment—by taking a closer look at its most recent quarter (MRQ) profit margin, total asset turnover, and financial leverage.

Profitable companies that have increased their net income via higher net profit margin and/or asset turnover are viewed favorably, as those are considered positive sources of growth. However, if a company's profitability stems from an increase is leverage ratio, that's viewed negatively. 

We were left with five profitable consumer goods stocks on our list. Do you think these stocks will continue to see rising profits despite the drop in consumer spending? Use this list as a starting point for your own analysis, and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

1. Bemis Company, Inc. (BMS, Earnings, Analysts, Financials): Manufactures and sells flexible packaging products and pressure sensitive materials in the United States, Canada, Mexico, South America, Europe, and Asia. Market cap at $4.09B, most recent closing price at $40.55.

Diluted normalized EPS increased from 1.83 to 1.99 during the first time interval (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). For the second time interval, diluted normalized EPS increased from 1.99 to 2.1 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31). And for the last time interval, the EPS increased from 2.1 to 2.33 (12 months ending 2013-12-31 vs. 12 months ending 2012-12-31).

MRQ net profit margin at 3.97% vs. 3.93% y/y. MRQ sales/assets at 0.298 vs. 0.291 y/y. MRQ assets/equity at 2.474 vs. 2.639 y/y.

 

2. Dr Pepper Snapple Group, Inc. (DPS, Earnings, Analysts, Financials): Engages in the manufacture and distribution of non-alcoholic beverages in the United States, Canada, and Mexico. Market cap at $11.49B, most recent closing price at $58.51.

Diluted normalized EPS increased from 2.44 to 2.74 during the first time interval (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). For the second time interval, diluted normalized EPS increased from 2.74 to 2.96 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31). And for the last time interval, the EPS increased from 2.96 to 3.05 (12 months ending 2013-12-31 vs. 12 months ending 2012-12-31).

MRQ net profit margin at 11.09% vs. 7.68% y/y. MRQ sales/assets at 0.17 vs. 0.156 y/y. MRQ assets/equity at 3.696 vs. 3.962 y/y.

 

3. Ecolab Inc. (ECL, Earnings, Analysts, Financials): Develops and markets products and services for the hospitality, foodservice, healthcare, and industrial markets primarily in the United States. Market cap at $32.26B, most recent closing price at $107.45.

Diluted normalized EPS increased from 2.25 to 2.3 during the first time interval (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). For the second time interval, diluted normalized EPS increased from 2.3 to 2.74 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31). And for the last time interval, the EPS increased from 2.74 to 3.59 (12 months ending 2013-12-31 vs. 12 months ending 2012-12-31).

MRQ net profit margin at 5.72% vs. 5.56% y/y. MRQ sales/assets at 0.171 vs. 0.166 y/y. MRQ assets/equity at 2.713 vs. 2.807 y/y.

 

4. Estee Lauder Companies Inc. (EL, Earnings, Analysts, Financials): Engages in the manufacture, marketing, and sale of skin care, makeup, fragrance, and hair care products worldwide. Market cap at $28.71B, most recent closing price at $75.0.

Diluted normalized EPS increased from 1.47 to 1.91 during the first time interval (12 months ending 2011-06-30 vs. 12 months ending 2010-06-30). For the second time interval, diluted normalized EPS increased from 1.91 to 2.3 (12 months ending 2012-06-30 vs. 12 months ending 2011-06-30). And for the last time interval, the EPS increased from 2.3 to 2.67 (12 months ending 2013-06-30 vs. 12 months ending 2012-06-30).

MRQ net profit margin at 8.36% vs. 7.8% y/y. MRQ sales/assets at 0.333 vs. 0.323 y/y. MRQ assets/equity at 2.085 vs. 2.222 y/y.

 

5. Harley-Davidson, Inc. (HOG, Earnings, Analysts, Financials): Produces and sells heavyweight motorcycles, as well as offers motorcycle parts, accessories, and related services. Market cap at $15.17B, most recent closing price at $69.47.

Diluted normalized EPS increased from 1.57 to 2.53 during the first time interval (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31). For the second time interval, diluted normalized EPS increased from 2.53 to 2.8 (12 months ending 2012-12-31 vs. 12 months ending 2011-12-31). And for the last time interval, the EPS increased from 2.8 to 3.27 (12 months ending 2013-12-31 vs. 12 months ending 2012-12-31).

MRQ net profit margin at 15.41% vs. 14.26% y/y. MRQ sales/assets at 0.177 vs. 0.168 y/y. MRQ assets/equity at 3.079 vs. 3.513 y/y.

 

(List compiled by Mary-Lynn Cesar. Accounting data sourced from Google Finance. EPS data sourced from Yahoo! Finance. Quarterly sales data sourced from Zacks Investment Research. All other data sourced from finviz.)

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