Big consumer companies cut costs, Wall Street wants bolder steps
By Lisa Baertlein and Martinne Geller
BOCA RATON, Florida (Reuters) - Investors are growing impatient with the makers of global brands like Cadbury chocolate, Campbell Soup and Tide laundry detergent, as these stalwart consumer products companies try to boost profits through cost cuts and brand makeovers while smaller rivals take risks and grab market share.
Organic and soy milk seller WhiteWave Foods Co, privately owned yogurt maker Chobani Greek and Keurig coffee brewer seller Green Mountain Coffee Roasters Inc have shaken up their categories and chalked up enviable growth while big companies such as ConAgra Foods Inc, Danone S.A. and General Mills Inc struggle.
Shares of the companies that make everything from Cheerios and Pepsi-Cola to Pampers disposable diapers have been a defensive play for investors in uncertain times. But the companies have been struggling with weak demand in North America and Europe, cooling emerging markets and increasingly fickle consumers empowered by social media and online search and comparison tools.
Investors flocked to packaged food stocks last year, hoping to benefit from dividend increases and potential takeovers following the purchase of H.J. Heinz. Now they have begun to trade out, making consumer staples the worst-performing sector over the past six months.
Analysts warn their shares could sink further.
During the last five years, the Standard & Poor's 1200 Consumer Staples index had a total return of 117 percent, ranking sixth out of the 10 sectors measured. Over the past six months its return has been the worst of the 10, down 0.55 percent.
"You're going back to the fundamentals now, which really are pretty abysmal," said Wells Fargo food analyst John Baumgartner. He and others said there may be room for further declines. "The stocks still aren't cheap."
Helped by predictable, strong cash flow and generous dividends, the 25 biggest consumer staples firms still trade at 18 times forward earnings estimates, according to Thomson Reuters data. That's not far from the 20 multiple enjoyed by the fast-growing technology stocks. Continued...