For Immediate Release
Chicago, IL – September 13, 2017 – Today, Zacks Equity Research discusses the Industry: Consumer Staples, Part 3, including Amazon.com, Inc. (Nasdaq:(AMZN - Free Report) – Free Report), Unilever plc (NYSE:(UL - Free Report) – Free Report), Coca-Cola Company (NYSE:(KO - Free Report) – Free Report), Procter & Gamble Co. (NYSE:(PG - Free Report) – Free Report) and Kellogg Co. (NYSE:(K - Free Report) – Free Report).
Industry: Consumer Staples, Part 3
Although the Consumer Staples sector is gaining from increasing consumer confidence and improving U.S. economic growth, the sector is not immune to macro-economic headwinds. While more confident consumers and a stronger labor market are good reasons for the Federal Reserve to raise interest rates again this year, the fear remains that higher U.S. interest rates will likely lead to a stronger dollar, which will hurt overseas profits and create an unfavorable environment for emerging economies. Worries about persistently low inflation might also act as a deterrent.
President Trump’s administration is targeting tax cuts, deregulation and infrastructure spending for driving growth. However, Trump’s ability to implement his pro-growth policies is in question. North Korea’s latest nuclear test has further heightened political tensions globally.
Other headwinds like potential price wars, a competitive environment and slowdown in international markets may also hinder growth.
Hence, investors should carefully pick stocks amid these headwinds.
Margins Under Pressure
The grocery industry has been grappling with challenges like stiff competition and aggressive promotions. Traditional grocery companies are facing competition from rivals, which are strengthening their franchises and offering alternative outlets for food and other staples. Customers are also more inclined toward private label products, which are low-cost alternatives to national brands. This is hurting food companies as well.
The announcement of an all-cash $13.7-billion deal by e-Commerce biggie Amazon.com, Inc. (Nasdaq:(AMZN - Free Report) – Free Report) on Jun 16 to acquire natural and organic foods supermarket chain Whole Foods Market was also a major blow. On Aug 28, Amazon closed the Whole Foods deal following Federal Trade Commission’s approval. The deal has sent ripples across the grocery segment as the traditional food companies are now apprehensive of pricing pressure, squeezed margins and dwindling customers.
Slowdown in Emerging Markets
Majority of the global population is clustered mostly in emerging economies. Though emerging markets offer strong growth prospects, they are generally volatile.Apart from China, which has been struggling over the past few quarters, developing countries like Brazil and Mexico are facing an economic slowdown. The Middle East, Russia and Ukraine are facing continued political and civil unrest resulting in challenging operating conditions. Some developed markets are also facing weakness due to soft consumer demand.
For example, consumer product company Unilever plc (NYSE:(UL - Free Report) – Free Report) is still grappling with declining volumes in Brazil, while performance has improved in China and India. The company is also witnessing weakness in the developed markets with little sign of recovery in North America or Europe. Moreover, it also remains cautious as consumer demand continues to be low.
Beverage giant The Coca-Cola Company (NYSE:(KO - Free Report) – Free Report) is also apprehensive about the broader economic conditions. While the macro environment is improving in North America, Japan and India, Coca-Cola foresees challenges in key emerging/developing markets like Brazil, Russia and China.
Companies like Procter & Gamble Co. (NYSE:(PG - Free Report) – Free Report) and Kellogg Co. (NYSE:(K - Free Report) – Free Report) are also facing decelerating growth in developing markets along with currency headwinds.
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