CONSUMER STAPLES

1
CONSUMER STAPLES SECTOR OUTLOOK TOBY
MACZKA CARLOS JARAMILLO
2
CONSUMER STAPLES
SIZE AND COMPOSITION
PERCENTAGE OF COMPANIES 6.8 PARTICIPATION IN
824 PORTFOLIO 12.17
3
CONSUMER STAPLES
INDUSTRIES IN THE SECTOR
4
CONSUMER STAPLES
SUB-INDUSTRY DESCRIPTION
FOOD DRUG RETAILING (14) Drug retail stores,
food distributors, Food retail (supermarkets). FO
OD PRODUCTS (17) Agricultural products, Meat
Poultry Fish (Discontinued, effective April
02), Packaged Foods Meats BEVERAGES
(30) Brewers, Distillers Vintners, Soft Drinks
( water milk) TOBACCO (13) Cigarettes and
other tobacco products HOUSEHOLD PERSONAL CARE
(26) Non-durable household products, personal
and beauty care products.
5
CONSUMER STAPLES
LARGEST COMPANIES
6
CONSUMER STAPLES
BUSINESS ANALYSIS
PLAYING DEFENSE
LIFE CYCLES The sector can be defined as
Non-cyclical since changes in demand are
relatively independent to economic
conditions. All industries in the sector are in
their mature stage, relying more in the redesign
and promotion of existing products than in the
development of new ones. SECTORS BETA 0.49
7
CONSUMER STAPLES
BUSINESS ANALYSIS
ECONOMIC GROWTH
U.S. Expectations for a recovery have a positive
impact in the sector but given that Consumer
Staples is a non-cyclical sector, the magnitude
of the effect is not expected to be significant.
An increase in the consumer spending as a
result of the recovery will drive customers to
buy higher quality products but the change in
demand are not significant. INTERNATIONAL Europe
and Japan in same conditions and expecting
slower recovery. Faster growth in developing
country economies.

-

8
CONSUMER STAPLES
BUSINESS ANALYSIS
DEMAND ANALYSIS

• DEMOGRAPHICS (U.S.)
• Population growth in U.S. lower than expected.
• New household growth low.
• Baby boomers aging and changing consumption
  patterns.. Moving to Healthcare, Financial and
  Leisure.
• More two-income and single-parent families
  reducing the time available for shopping,
  cleaning and cooking.. Multipurpose products and
  Meal solutions.

9
CONSUMER STAPLES
BUSINESS ANALYSIS
DEMAND ANALYSIS

• DEMOGRAPHICS (U.S.)
• Ethnic diversity plus the disposition of
  Americans for experimentation allows the
  introduction of new products. Not all the food
  is Mexican, Chinese or Italian.
• Increase demand for beer in 21 27 year olds
  and increase consumption among women.

10
CONSUMER STAPLES
BUSINESS ANALYSIS
DEMAND ANALYSIS

• DEMOGRAPHICS (INTERNATIONAL)
• Higher growth in population than U.S.
• Americanization of consumption patterns.

11
CONSUMER STAPLES
BUSINESS ANALYSIS
OTHER EXTERNAL FACTORS

• TECHNOLOGY
• B2B marketplace, E-commerce, Self-scanning
  shops.
• GOVERNMENT
• Lawsuits against the Tobacco Industry.
• FTC (Federal Trade Commission) obstructing
  consolidation process.
• RAW MATERIALS
• Low prices in commodities (grains and oil).

-

12
CONSUMER STAPLES
BUSINESS ANALYSIS
PROFITABILITY PRICING

• Private-label brands increasing participation.
• Increasing competition in retail, Wal-mart being
  the biggest threat.
• Increase in demand for Premium brands in
  Alcoholic Beverages.
• High entry barriers at national level (big
  scale).
• Highly concentrated sector except for Foods.
• Patent expiration improve margins and sales for
  drug retailers.

-




13
FINANCIAL ANALYSIS
CONSUMER STAPLES
14
CONSUMER STAPLES
FINANCIAL ANALYSIS
LONG TERM GROWTH RATES
15
CONSUMER STAPLES
FINANCIAL ANALYSIS
PROFIT MARGINS
16
CONSUMER STAPLES
FINANCIAL ANALYSIS
PROFIT MARGINS
17
CONSUMER STAPLES
FINANCIAL ANALYSIS
RETURN ON EQUITY CAPITAL
18
CONSUMER STAPLES
FINANCIAL ANALYSIS
CASH FLOW
19
CONSUMER STAPLES
FINANCIAL ANALYSIS
PRICE / EARNINGS
20
CONSUMER STAPLES
FINANCIAL ANALYSIS
PRICE / BOOK
21
CONSUMER STAPLES
TOBACCO INDUSTRY
PRICE / EARNINGS
22
CONSUMER STAPLES
FINANCIAL ANALYSIS
SECTOR PERFORMANCE
23
CONSUMER STAPLES
FINANCIAL ANALYSIS
TECHNICAL ANALYSIS
24
CONSUMER STAPLES
FINANCIAL ANALYSIS
PERFORMANCE COMPARISON
25
CONSUMER STAPLES
FINANCIAL ANALYSIS
VALUATION COMPARISON
26
CONSUMER STAPLES
RECOMENDATION
PARTICIPATION 824 PORTFOLIO 12.17 SECTOR IN
SP 500 8.4

• Market Weight sector to SP 500
• Economy transitioning into a period of expansion.
• Sector has appreciated substantially from its
  lows.