ZURICH, Switzerland— US packaged food stocks should hold up better than the broader market due to their inherent safe haven nature after the United Kingdom voted in favor of leaving the European Union, according to Credit Suisse. Within the sector, however, US companies with the highest euro exposure may underperform the most.
Those companies include Mondelez International, Inc., The Kellogg Co., WhiteWave Foods, General Mills, Inc. and Kraft Heinz.
“These companies will have to cope with the probability of a recession in the UK, the immediate prospects of higher raw material costs (due to transaction currency exposure), and higher tariffs across Europe,” Credit Suisse said. “We expect these companies to pass through these higher costs to consumers through pricing in the near to medium term.”
The implications are probably negative for agricultural companies such as Archer Daniels Midland Co. and Bunge because they prefer frictionless global trading environments, according to Credit Suisse.
“However, volatility in the global grain markets sometimes helps these companies in unexpected ways.” Credit Suisse said. “So we refrain from drawing any immediate conclusions."
The United Kingdom’s vote to leave the EU, called Brexit, may affect the plan of ConAgra Foods, Inc. to spin off its Lamb Weston business, too.
“We may be jumping to conclusions, but if the financial uncertainties created by this referendum accelerate, ConAgra may decide to delay the ipo of Lamb Weston,” Credit Suisse said. “But we don’t view this necessarily as a negative for the stock because ConAgra always has an option to re-engage Post, which has expressed a strong desire to buy the Lamb Weston business.”
