Consumer companies' outperformance no longer guaranteed by cheap oil

Fri Feb 12, 2016 11:00am EST
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By Martinne Geller

LONDON (Reuters) - Consumer companies are offering investors a small degree of relief from the turmoil in banking and resources in a results season dominated by fears about slowing economic growth.

But those companies say lower oil prices no longer translate into a traditional boost for spending on their products because households are using the money saved at the gas pump and on energy bills to stash cash, pay off debt or on other items.

This means those companies may not be as much of a safe haven investment as they used to be in times of low commodities prices or economic stress.

Since 2008, food and beverage stocks have offered a 142 percent total shareholder return, nearly double that of the market overall, according to Thomson Reuters global equity indices. Since the start of the year, they have lost 3.4 percent, versus 12 percent for the global index.

"In the context of a market that's in meltdown, the performance consumer goods has been delivering is pretty good," said Jefferies analyst Martin Deboo.

Consumer stalwarts PepsiCo (PEP.N: Quote), Unilever (ULVR.L: Quote) and French cosmetics firm L'Oreal (OREP.PA: Quote) all reported better-than-expected revenue in contrast to dismal results from banks including Credit Suisse CSGN.VX and Deutsche Bank (DBKGn.DE: Quote) and oil, gas and mining firms. Tobacco company Philip Morris International (PM.N: Quote) gave a strong outlook and liquor giant Diageo (DGE.L: Quote) reported improvements.

There have also been good results from General Motors (GM.N: Quote), Adidas (ADSGn.DE: Quote) and Norwegian Air (NWC.OL: Quote), and analysts are on the lookout for similar trends next week in reports from Nestle NESN.VX, Michelin (MICP.PA: Quote), Puma (PUMG.DE: Quote) and Royal Caribbean Cruises (RCL.N: Quote).

Consumer confidence has risen in the United States and Europe, nearing 2007 levels, and car sales, which analysts call a good proxy for discretionary spending, are showing promise of staying healthy in 2016.   Continued...

Bottles of Pepsi cola are seen in a display at PepsiCo's 2010 Investor Meeting event in New York, March 22, 2010.  REUTERS/Mike Segar