What China Means For Staples Stocks

In a report published Monday, Citi analyst Adam Spielman discussed the effect on staples stocks as China's actual growth rate is "much lower" than the 7 percent the country reported in the first half of 2015.

According to Spielman, China's growth in the first half of 2015 was "flattered" by a large contribution from next exports and equity markets activity that "aren't sustainable" and suggest risk exists to the country's 7 percent growth target for the bottom half of 2015.

Spielman said that staples companies have varying degrees of exposure to the Chinese market. For example, Remy Martin derives approximately 30 percent of its EBIT in China while the analyst estimated Diageo plc (ADR) (NYSE: DEO) EBIT exposure to China is near zero.

Related Link: Is Debt Killing China?

Food And Beverage

• Mead Johnson Nutrition CO (NYSE: MJN) (31 percent of sales from China) lowered its 2015 guidance in July due to competitive pricing pressures in China.
• Hershey Co (NYSE: HSY) (5 percent of sales from China) slashed its full-year sales growth guidance by 200 basis points relative to its prior guidance with 100 basis points stemming from lower organic growth in China.

Health Products

• Unilever plc (ADR) (NYSE: UL) commented during its second-quarter print that China returned to growth for each of its segments. The analyst noted that the company's deal with Alibaba Group Holding Ltd (NYSE: BABA) should "improve its presence" in e-commerce.

Tobacco

Spielman stated that he left Reynolds American, Inc. (NYSE: RAI)'s investor day presentation last week with "renewed confidence." The analyst added that the company will be the fastest-growing U.S. tobacco company. The company said that it spent $30 million in the first half of the year discounting Winston, Salem and Kool to maintain its 4.9 percent market share.