This post was originally published on January 31.
The year is already off to a strong start with key benchmarks still near record highs. But news from a handful of companies suggests they’re on the wrong side of history as their markets and customers change. Today we wanted to highlight a few that really stood out based on recent developments.
First and worst is Newell Brands (NWL). It’s the S&P 500’s biggest loser of the year with a 17 percent drop, which followed a 31 percent bloodletting in 2017. The consumer-products firm was already struggling with too many brands, only to crater further last week on plans to unload some of its businesses. But deeper in the announcement was talk of of “retailer inventory rebalancing” (translation: “They’re buying less of our stuff.”) They also said “margins were impacted by the negative mix effect of lower Writing sales.” (translation: “We had to cut prices because people bought less of our stuff.”)
L Brands (LB), the parent of Victoria’s Secret, is close behind with a 16 percent drop since the start of January. This time the culprit is less demand for its old selection of high-priced lingerie and bras. LB, also fell 9 percent last year and has been trending lower since late 2015.
Tupperware (TUP) is getting hammered by 9 percent today despite profit beating estimates. Investors seemed more concerned about the revenue miss and shrinking sales in North America. Then there’s Gillette owner Procter & Gamble (PG), which has skidded lower since confessing on January 23 that razor-competition will shave its margins. (Seriously, talk about a haircut…)
No, you’re not crazy if you notice a common theme in these announcements. All of them involve branded consumer products. These typically command premium pricing because of customer loyalty, much of which depended on heavy advertising.
But all of that is changing now. It’s hard to get that message out with traditional media bleeding customers… just look at flat price performance of dinosaurs like Walt Disney (DIS) and Comcast (CMCSA) versus the 50 percent rally at Netflix (NFLX) in the last six months. There’s also a new wind blowing through the retail space as Americans flock to Amazon.com (AMZN) and discounters like Aldi’s rewrite the rules for grocery shopping. Analysts call these sorts of changes “secular” trends: painful if they go against you.
Here’s one more thought: Many of these consumer product companies carry decent slugs of debt because creditors always viewed their businesses as stable. But if assets lose buoyancy, those liabilities can swamp the overall stock prices. Just look at what happened to the newspapers last decade.
Bottom line: The economy and stock market have been on an amazing run for months, but the rising tide hasn’t lifted all ships. A little morsel for you bears out there to munch on.