Consumer Staple Stocks Are Not Always Safe Haven Investments

Three consumer staple stocks reported earnings yesterday. Typically, these types of stocks are sought out as safe haven investments during slowing economic conditions.

First was Philip Morris International (PM) (Call Transcript). PM reported 2q08 EPS of 86 cents which bettered consensus estimates by 3 cents. Furthermore, PM raised its FY08 guidance by 14 cents on each end of the estimate range to $3.32 - $3.38. During the quarter PM declared its initial quarterly dividend of 46 cents which implies a yield of about 3.5%. I own PM together with Altria (MO) which I received as part of the old Altria split-up. I like the international growth in PM core Marlboro brand.

Next was PepsiCo (PEP) (Call Transcript). PEP reported a 9% year over year rise in profits to $1.05 per share. Excluding commodity mark to market gains PE earned $1.03 which was 1 penny better than analysts’ consensus. Revenues rose 14% of which 4.5% was from volume growth.  Revenues of $10.945 billion beat consensus estimates of $10.55 billion. Last year I started to put some money into PEP dividend reinvestment plan for a charitable trust that I control. PE is well managed and I like its mix of soft drinks and snacks in its product line.

Finally there was Hershey (HSY) (Call Transcript). HSY beat analysts’ consensus EPS estimates by 1 penny as it earned 29 cents. In the year ago quarter HSY earned 35 cents. Revenues were $1.11 billion versus estimates of $1.08 billion and year ago sales of $1.05 billion. The sales figures are deceptive since HSY is passing on its commodity cost increases to the consumer. However as we see, earnings declined as the company has had to absorb more costs than it is passing on.

HSY is one of those stocks that are traditionally safe haven investments but due to food and energy prices in the current environment have turned out to be a disaster. This goes to show you that you have to analyze stocks independent of their general Wall Street sector designation. What is safe may not be safe and what is not thought to be safe may indeed be safe as well.

Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of PEP --- although positions can change at any time.