Investors' concerns over the Fed's monetary policy tightening to curb runaway inflation has led the S&P 500 to a 13% decline this year and 8.8% in April. Meanwhile, fears about an anticipated economic slowdown and the Ukraine-Russia war continue to spook investors. However, consumer defensive stocks have proved to be among the best performing sectors of the S&P 500 over the past month amid the market volatility.
However, some experts believe that the defensive sector’s rally will be brief. They expect the trend will reverse when investors return to the major technology and growth companies that have been driving markets upward for years. Furthermore, increasing Treasury yields in response to the Fed’s hawkish policy might pressure defensive stocks.
Though the consumer defensive sector has been outperforming lately, not all stocks in this space could exhibit robust financial performance in the near term. So, we think Clorox Company (CLX) and Estée Lauder Companies Inc. (EL), which recently cut their guidance for the full year, could be best avoided now.
Clorox Company (CLX)
Headquartered in Oakland, California, CLX manufactures and markets consumer and professional products internationally. It has four operating segments: Health and Wellness; Household; Lifestyle; and International.
CLX has cut its outlook. The company now expects adjusted earnings of $4.05 to $4.30 per share, down from the prior estimate of $4.25 to $4.50 per share. It expects sales to decrease by 1% -4%. Also, its gross margin is now expected to decrease up to 800 basis points due to higher than previously anticipated commodity and manufacturing and logistics costs.
During the third quarter, ending March 31, 2022, CLX's gross profit declined 16.1% year-over-year to $649.00 million. The company's non-GAAP EPS declined 19% from its year-ago value to $1.31, while the cash and cash equivalents declined 24.5% from its previous period to $241 million for the nine months ended March 31, 2022.
CLX's consensus EPS is expected to decline 42.5% in its fiscal year 2022. Analysts expect its revenue to decrease 2.3% year-over-year to $7.17 billion for its fiscal 2022. The stock has plunged 11.7% in price year-to-date.
CLX's POWR ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CLX has a D grade for Sentiment. Within the D-rated Consumer Goods industry, it is ranked #33 of 61 stocks.
To see additional POWR Ratings for Value, Growth, Stability, Quality, and Momentum for CLX, click here.
The Estée Lauder Companies Inc. (EL)
EL in New York City manufactures, markets, and sells skin care, makeup, fragrance, and hair care products worldwide. The company provides a range of skincare products, including moisturizers, serums, cleansers, toners, body care, exfoliators, acne care, oil correctors, facial masks, cleansing devices, and sun care products; and makeup products.
The restrictions in China, a major growth market for global luxury goods makers, put the brakes on a recovery in demand for cosmetics from a pandemic-induced slump. EL's Asia-Pacific sales fell for the first time in nearly two years as public health restraints in China also limited its capacity to ship orders from distribution facilities.
The company lowered its revenue and earnings outlook for 2022. It expects its sales to increase between 7% and 9%, down from the previous guidance of 13% to 16%. It also revised its adjusted earnings expectation to $7.05 - $7.15 a share from $7.43 - $7.58.
For its third fiscal quarter ending March 31, 2022, EL's total operating expenses increased 8.8% year-over-year to $2.51 billion. The company’s cash and cash equivalents declined 22.6% from its prior period to $3.84 billion, while its net cash flow provided by operating activities decreased 29.1% from its previous period to $1.97 billion for the nine months ending March 31, 2022.
The $0.37 consensus EPS estimate represents a 52.8% year-over-year decline for the fourth quarter, ending June 30, 2022. The $3.50 billion revenue estimate represents a decline of 11.2% in the fourth quarter ending June 2022. The stock has declined 35.1% in price year-to-date.
EL's weak fundamentals are reflected in its POWR ratings. The stock has a D grade for Growth and Value. In the A-rated Fashion & Luxury industry, it is ranked #56 of 68 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the EL rating for Momentum, Sentiment, and Stability here.
CLX shares were trading at $159.30 per share on Monday morning, up $5.36 (+3.48%). Year-to-date, CLX has declined -7.33%, versus a -15.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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