The bloodbath continues in Consumer Staples as earnings season rolls on.
Today’s big losers included brewer Molson Coors (TAP), cosmetics maker Estee Lauder (EL) and snacks giant Mondelez (MDLZ). Some beat estimates, others missed. It didn’t matter. Sellers hammered them all, following a trend that took hold with vengeance earlier this year.
TAP led the carnage with a 13 percent drop after trailing analyst forecasts on its top and bottom lines. Volumes of beer shrank more than 3 percent and management sees more weakness going forward as distributors work down inventories. The stock is currently at its lowest level in almost four years.
EL outclassed the Street, but all anyone seemed to care about was a single line in the press release: “Partially offsetting the sales growth was softness in the salon channel in North America.” The seller of makeup under its own name and brands like Aveda and Clinique slid almost 7 percent, its worst drop in almost three years.
Ditto for MDLZ, except their problem was margin pressures from higher commodity prices. The parent of foods including Nabisco and Oreo dropped almost 3 percent to a new two-year low.
Several problems are hitting the sector all at once. First, closing of retail space in the U.S. is creating a glut of unsold inventories. Second, many long-established brands appear to be losing market share. That makes it harder to defend prices. Just look at Gillette. It survived two world wars, the Great Depression and Financial Crisis… but can it survive in the same ecosystem with Amazon.com (AMZN) and Aldi?
Next, consumer staples are often viewed as “steady Eddy” cash-flow companies that pay healthy dividends. But that’s not really what investors want when interest rates are soaring and the economy’s hitting on all cylinders. Now you also have the potential risk of higher commodity prices. Add on top of that the healthy slug of debt most of these companies have and you have exactly the kind of sector that short sellers love. It almost reminds you the newspapers last decade. Remember them?