Back to top

Consumer Staples Hits New Low, Mexico Tariffs Add to Woes

Read MoreHide Full Article

Consumer staple companies came under pressure on Jun 5, after Mexico announced retaliatory tariffs on goods imported from the United States. The heat was primarily felt by packaged foods companies, as fears of a trade war fail to subside. Consumer staples have been suffering for a long time now with changing tastes and preferences of consumers and increased competition from online retail giants like, Inc. (AMZN - Free Report) .

In fact, the consumer staples sector fell for the fourth consecutive month in May, registering its worst performance since 1990. Trade war fears have added to the sector’s woes, as consumer staples continue to take a beating with retaliatory tariffs being imposed by the United States’ trade allies. That said, it needs to be seen how consumer staple companies fight back in the days to come.

Mexico Tariffs Hit Consumer Staple Stocks

The United States’ decision to impose 25% and 10% tariffs on Chinese steel and aluminum followed by tariffs of another $60 billion saw China come up with retaliatory tariffs on a wide range of U.S. products that primarily hit the consumer staples sector.

Moreover, the United States last week imposed tariffs on imported steel and aluminum from the European Union (EU), Mexico and Canada. On Jun 5, Mexico announced that it will impose retaliatory tariffs on U.S. products including pork, bourbon and some types of cheeses.

This saw consumer staples stocks, in particular packaged food companies, taking a hit. Shares of Kellogg Company (K - Free Report) and General Mills, Inc. (GIS - Free Report) slid 2% and 1.8%, respectively. Also, shares of Campbell Soup Company (CPB - Free Report) and Dr Pepper Snapple Group, Inc. declined 0.1% each.

Understandably, packaged food companies have reasons to worry with Mexico, one of United States’ biggest trade allies, now imposing retaliatory tariffs.

Consumer Staples Suffer Longest Decline

Consumer staples stocks have been suffering for quite some time now, with the sector entering the longest monthly losing streak since November 2016. The S&P 500 Consumer Staples index declined 1.7% in May, registering its straight monthly fall. On a year-to-date basis, the S&P 500 Consumer Staples index has declined 13.3%.

Moreover, of the 11 major S&P 500 sectors, the Consumer Staples Select Sector SPDR (XLP) was the second-worst performer in first-quarter 2018. The consumer staples sector didn’t have a good start to 2018, after having registered gains of more than 130% over a period of nine years. The sector has been under pressure owing to rising competition from online retailers and at the same time has been affected by rising commodity prices and transportation costs, and declining brand value.

Packaged Food, Beverage, Tobacco Companies Suffer

Changing customer preference and inclination toward healthier options have seen a number of beverage, packaged foods and tobacco companies suffer. Year to date, shares of PepsiCo, Inc. (PEP - Free Report) and The Coca-Cola Company (KO - Free Report) have declined 15.1% and 5.3%, respectively. Similarly, shares of B&G Foods, Inc. (BGS - Free Report) and The Procter & Gamble Company (PG - Free Report) have declined 20.3% and 18.4%, respectively, over the same time period.

Tobacco companies too have been suffering with slower-than-expected adoption of alternate tobacco products in some markets and at the same time health-conscious people looking for healthier options. Shares of tobacco giants like Turning Point Brands, Inc. (TPB - Free Report) and Philip Morris International Inc. (PM - Free Report) have declined 0.6% and 25.8%, respectively. Turning Point Brands carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bottom Line

Consumer staples stocks have been considered a defensive bet, mainly because of its predictable growth rate and high dividends. However, a number of factors including changing consumer preference, declining brand value and stiff competition from online retailers are acting as tailwinds. Moreover, trade war fears have added to the woes, with countries like Mexico and China imposing tariffs on imported goods from the United States.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%. And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

More from Zacks Analyst Blog

You May Like

Published in