Consumer Staples
Sector Presentation
•Ickdon Choe
•Steven A. Benvin
•Andrew Brickner
•Gregory Adkins
Presentation Agenda
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•
•
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Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendation
Overview
S&P 500 Sector Breakdown
Size of the Sector
• S&P 500: $12,086,550.27 (Millions)
• Consumer Staples: $1,220,168.12
• Accounts for 10.10% of the S&P 500
SIM Portfolio:
• Consumer Staples accounts for 9.04%
• Underweight by 106 Basis Points
Size of the Sector
7th Largest in SIM Portfolio
Performance vs. S&P500
Index Name
Energy
Materials
Industrials
Cons Disc
Cons Staples
Health Care
Financials
Info Tech
Telecom Svc
Utilities
S&P 500
Adjusted Market Cap ( Index Level
$Million)
1,505,655.62
442,278.74
1,362,037.17
1,282,774.15
1,220,168.12
1,278,235.59
1,964,286.53
2,294,413.61
353,351.45
383,349.29
12,086,550.27
Performance
1 Day
551.07 -0.04%
247.83 0.46%
327.78 0.71%
312.34 0.95%
304.79 0.51%
373.78 0.05%
229.9 1.39%
435.9 0.33%
128.13 0.67%
162.09 -0.18%
1,329.15 0.55%
MTD
QTD
YTD
1.33% 8.75% 8.75%
3.58% 3.43% 3.43%
4.43% 8.85% 8.85%
6.45% 5.68% 5.68%
2.19% 0.40% 0.40%
2.08% 2.47% 2.47%
4.17% 7.05% 7.05%
3.40% 7.75% 7.75%
3.51% -0.47% -0.47%
0.66% 1.73% 1.73%
3.35% 5.69% 5.69%
Industry Sectors
Sector
Consumer Staples
Industry Group
Food & Staples
Retailing
Industry
Sub-Industry
Food & Staples Retailing
Food, Beverage & Tobacco
Beverages
Drug Retail
Food Distributors
Food Retail
Hypermarkets & Super Centers
Brewers
Distillers & Vintners
Soft Drinks
Agricultural Products
Packaged Foods & Meats
Tobacco
Household Products
Personal Products
Food Products
Household & Personal Products
Tobacco
Household Products
Personal Products
Largest S&P 500 Consumer Staples
Companies
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Wal-Mart 195.27 B
Proctor and Gamble 180.40 B
Coca-Cola Company 145.93B
Philip Morris International, Inc. 108.67B
PepsiCo, Inc. PEP 101.32B
CVS Caremark 44.52B
The J. M. Smucker Company 7.49B
Dean Foods Co. 1.79B
Business Analysis
Life Cycle
• Domestically, in the mature stage of the life cycle
• Internationally, still some room for growth due to faster
growing emerging markets, specifically Asia and Latin
American markets
• Emerging markets are more cyclical
Sector Traits
• In general, Consumer Staples sector seems
to perform better then or in line with the
market
• Food, beverage, household products and
cosmetics companies create consumable
products which are considered essential to
daily life
• Product demand is stable; growth is low,
usually meet expectations
• Defensive Sector
• Mostly large, stable companies
Sector Traits
• Competition very intense, would be very difficult to enter the
market, high capital requirements
• Noncyclical nature of the demand
• Staples tend to have a low price elasticity of demand: demand
for these products does not change much as their prices go
up or down
• Recession resistant
• Market is driven by very price sensitive consumers, brand
loyal customers (Increase brand awareness)
• Gives suppliers little room to increase prices or increase
demand
• Many substitute competitors
• Dependent on the cost of production
Economic Analysis
Economic Factors
• Industry is made up of companies that
produce goods that are necessary for
consumers
– Means stock is defensive and doesn’t face
swing in demands
• Insensitive to economic cycles
– Good during end of bull markets when
investors become more defensive
Relationships Between Economic Variables
& Sector
Economic Variable
10 Year Correlation Coefficient
Capital Goods Exports
R = 0.89
Crude Oil Price
R = 0.85
Consumption: Alcohol
R = 0.82
Sales: Restaurants
R = 0.78
$ Per Euro
R = 0.74
CPI
R = 0.16
Disposable Income
R = 0.05
Employment
R = 0.05
S & P 500 EPS
R = 0.00
30 Year Bond IR
R = -0.38
Inventory/Sales
R = -0.59
Canadian $/ US $
R = -0.84
Financial Analysis
Earnings per Share
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Median = $13.42 over past 10 yrs
5 yr EPS growth rate = 9%
Future growth rate = 10%
100.0000
90.0000
80.0000
70.0000
EPS
60.0000
50.0000
S&P 500
40.0000
Cons. Stpls
30.0000
20.0000
10.0000
0.0000
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
Earnings per Share
350
300
250
DSTLR
TBACO
FOODD
EPS
200
FOODR
BEVGS
150
PKGFD
AGPRD
Pers.
Products
BRWRS
100
50
0
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
Earning per Share
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Companies we are reporting on
Currently hold WMT, CVS, SJM
5
4.5
4
3.5
EPS
3
WMT
2.5
CVS
SJM
2
DF
1.5
1
0.5
0
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
Revenue per Share
• Median = $245.50 over past 10 yrs
• 5 yr Revenue growth rate = 8%
1200.0000
1000.0000
RPS
800.0000
600.0000
S&P 500
Cons. Stpls
400.0000
200.0000
0.0000
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
Revenue per Share
2500
2000
hypmk
RTDRG
HSHLD
HSHLD
1500
RPS
BRWRS
Pers. Products
AGPRD
PKGFD
1000
BEVGS
FOODR
FOODD
TBACO
500
DSTLR
0
2000
2001
2002
2003
2004
2005
Year
2006
2007
2008
2009
2010
Cash Flow per Share
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Steadily climbing since 2003
Fed by increased earnings and share buybacks
Price over Cash Flow
• Median of 1.2 times the S&P
Return on Equity
• Well above, with a median 1.5 times the S&P
Net Profit Margin
• Median = 0.7
EBITDA Margin
• Median = 0.6
Dividends
• Significantly higher dividend yield than the S&P, and steadily rising
• 5 yr Growth rate of 12%, 14% higher than the S&P
Valuation Analysis
Sector Valuation
10 Year Absolute Valuation
10 Year Relative Valuation SP500
40.0
3.0
35.0
2.5
30.0
2.0
25.0
20.0
1.5
15.0
1.0
10.0
0.5
5.0
P/Trailing E P/Forward E
High
Low
P/B
Median
P/S
Current
P/CF
P/Trailing E P/Forward E
High
Low
P/B
Median
P/S
Current
P/CF
Valuation across company (Absolute)
Valuation across company (S&P500)
Trailing P/E
45
40
35
30
25
20
15
10
5
0
Monthly High
Monthly Low
Median
Current
P/E Trend over last 10 years
Recommendation
• Two options:
– Either stay where we are, about 100 basis
points underweight compared to the S&P 500
– Add 100 basis points to be in line with the
S&P 500
Thank you!
Any Questions?