For Immediate Release
Chicago, IL – April 30, 2018 – Today, Zacks Equity Research discusses the Industry: Consumer Staples, Part 2, including Tyson Foods (NYSE:TSN) , Newell Brands (NYSE:NWL) , Molson Coors (NYSE:TAP) , Sysco (NYSE:SYY) and Kimberly Clark (NYSE:KMB) .
Industry: Consumer Staples, Part 2
Demand for everyday-use products created by operators in the Consumer Staples space doesn’t tend to fluctuate a lot, but it is nevertheless exposed to macroeconomic forces at the margins. As such, the outlook for this space perks up as the outlook for the U.S. and global economy improves.
The outlook for the U.S. economy has been favorable for the last several years, with the recent tax legislation expected to add to the longevity of the current U.S. expansion cycle. In addition to the indirect benefits to Consumer Staples companies from the tax cuts, these companies also stand to benefit directly from the legislation, as reflected in the improving earnings outlook for many companies. That said, Consumer Staples operators tend to be global in their operations and as such don’t benefit to the same extent from U.S. tax law changes as the more domestic companies.
With growth hard to come by for companies in this mature space, Consumer Staples players have to remain focused on squeezing more out of their operations and coming out with revenue-boosting initiatives, which mainly include efforts to keep pace with the changing consumer patterns.
On that note, let’s delve deeper in some of the major growth-driving strategies of the space.
Strengthening Product Portfolio via Strategic Alliances, Buyouts
Consumer staples companies are regularly undertaking both domestic and international acquisitions to expand their product lines and gain access to new markets. Some of these are also forming partnerships, mostly with larger and better-known companies, to strengthen their distribution networks, diversify portfolios, expand their reach and enhance market positioning. Notably, leveraging each other’s efficiencies creates significant synergies for companies that go for M&A activities.
Mergers of Tyson Foods with packaged meat producer The Hillshire Brands (in August 2014); tobacco giants Reynolds American (NYSE:RAI) and Lorillard (in June 2015); and consumer goods companies Newell Brands and Jarden (in 2016) were the most talked about deals. Apart from this, Molson Coors acquired SABMiller (LON:SAB) plc’s 58% stake in MillerCoors, which made the former the third-largest brewer in the world, after Anheuser-Busch InBev and Heineken.
Cost Cutting and Restructuring Initiatives
Most consumer staples companies are implementing cost-reduction initiatives to boost profits. In the latter half of 2017, Tyson Foods announced a Financial Fitness Program, with the objectives of enhancing operating efficiency, reducing overheads and fueling bottom-line performance. Additionally, Sysco’s core strategies for 2020 include plans to optimize business and achieving operational efficacy. We also commend Kimberly Clark’s 2018 Global Restructuring & Focus on Reducing Costs Everywhere (FORCE) programs, which are expected to generate cost savings of more than $2 billion over the next four years.
Focus on Innovation
Innovation remains the guiding principle of consumer staples companies as it enables them to enhance brand appeal through product differentiation and capture market share across all regions and categories. Thus, companies put a lot of thrust on innovation to upgrade their brands and create differentiated value propositions. Notably, constant innovations supported by efficient marketing are essential for consumer staples companies to stay ahead of competition.
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