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Despite big declines in some key commodity prices from their July 2008 peaks, Fitch Ratings says the outlook remains guarded for U.S. personal care and domestic household stocks and “ratings and outlooks could experience some downward pressure.”

Surging oil prices caused many U.S. companies in the sector, such as Clorox (NYSE: CLX), Colgate-Palmolive (NYSE: CL), Procter & Gamble (NYSE: PG) and Kimberly-Clark (NYSE:KMB), to aggressively raise prices, which could lead to consumer sticker shock and declining sales volumes, Fitch said in a report this week. “Since 2005, pricing has become an important driver to top-line growth, particularly for those companies where certain brands represented a material part of revenues and were commodity-intensive. ”

Clorox, Colgate, P&G and Kimberly-Clark have been successful at implementing price increases. Driving their ability to do so is the fact that they have leading, well-supported brands that move quickly off retailer shelves and drive foot traffic into the stores.

The squeeze on profit margins and cash flow for some major players in the sector could reverse if commodity prices continue to drop substantially and remain at lower levels, the Fitch said.

But given the continued volatility of commodity markets, the fact that prices are well above 2007 levels and uncertainty about the overall economy, Fitch said the risk of ratings downgrades remains in place through 2008.

Details are available in Observations of High Commodity Costs on the U.S. Household and Personal Care Sector.

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