Consumer Staples Sector Laura Fillman Mary Kanet

Consumer Staples Sector

Laura Fillman

Mary Kanet

Recommendation

Under-weight Consumer Staples Interim period between Federal Reserve action Under-weight .50%, S&P 500 is at 9.46% Consider under-weighting more when the economy

gains momentum Although there is uncertainty, the economy is

expected to rebound, which would have a relatively negative effect on the consumer staples sector

Outline

Sector Overview Business Analysis Financial Analysis Valuation Analysis Recommendation

Sector Overview

S&P 500 Composition

Source: www.standardandpoors.com, as of 01/31/03

Market Capitalization

18%

7%

5%

16%

10%

13%

15%

7%

2%7%

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

TelecommunicationServices

Utilities

Companies

88

34

23

81

48

67

76

34

1237

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

TelecommunicationServices

Utilities

Consumer Staples Composition

Market Capitalization

1% 6% 1%4%

3%

4%

22%

17%

6%

25%

11% Agricultural Products

Brewers

Distillers & Vintners

Drug Retail

Food Distributors

Food Retail

Household Products

Packaged Foods & Meats

Personal Products

Soft Drinks

Tobacco

Source: Business Week Online, 01/31/03.

Companies

12

1

2

2

4

48

3

4

3Agricultural Products

Brewers

Distillers & Vintners

Drug Retail

Food Distributors

Food Retail

Household Products

Packaged Foods & Meats

Personal Products

Soft Drinks

Tobacco

Consumer Staples Composition

Largest Companies Procter & Gamble, 15.20% (Household

Products) Coca-Cola, 13.65% (Soft Drinks) Altria Group, Inc., 10.84% (Tobacco)

Business Analysis

Demand

Growth/Mature Life CycleGrowthMore CompetitionHigh Cash Flow

Defensive Business CycleStable performerPerforms better when market falls

Users and Geography High Foreign Exposure

Global Franchises for Coca-Cola and Procter & Gamble

Declining dollar since the beginning of 2002

Emerging markets in Asia and Latin America

StockVal®1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

US $ TRADE WTD-MAJOR CURRENCY (MONTHLY)76

78

80

82

84

86

88

90

92

94

96

98

100

102

104

106

108

110

HI 109.37 LO 77.53 ME 92.44 CU 97.65 GR 0.9%

01-31-199312-31-2002

Trend line analysis Given that consumer

staples is a stable/defensive sector, we predict future demand to be consistent with past demand

StockVal®S&P CONS. STAPLES SECTOR COMPOSITE A Price 37.31993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

REVENUES23100

23800

24500

25200

25900

26600

27300

28000

28700

29400

30100

30800

31500

32200

32900

33600

34300

35000

HI 34566LO 23556ME 28461CU 34566GR 4.1%

03-31-199309-30-2002

Supply New capacity additions increase linearly with demand

Balance SheetS&P CONS. STAPLES SECTOR COMPOSITE A (SP-30) M-Wtd StockVal ®

FYE Dec Source: Media General Financial Services, Inc.

9/02 % Chg 6/02 % Chg 3/02 % Chg 12/01 % Chg 9/01

Cash & Equivalents ($ Mil) 1317.4 34 1278.6 46 1045.1 29 983.9 979.7

Accounts Receivable 2316.2 3 2287.3 8 2227.8 7 2223.5 2241.9

Inventories 3412.6 1 3332.8 1 3404.1 3 3467.5 3373.4

Total Current Assets 7869.1 5 7738.3 9 7519.1 7 7617.4 7461.6

Gross Fixed Assets 14006.9 4 13887.4 6 13669.4 7 13631.8 13415.2

Accumulated Depreciation 6124.3 6 6014.7 6 5877.0 9 5867.4 5792.5

Net Fixed Assets 7882.6 3 7872.7 6 7792.4 5 7764.4 7622.7

Intangibles 7854.7 15 7820.2 20 7714.4 17 7468.8 6816.9

Total Non-Current Assets 18758.1 9 18557.1 11 18291.0 9 18341.3 17234.2

Total Assets 26627.1 8 26295.4 10 25810.1 8 25958.7 24695.7

Accounts Payable 2567.6 -7 2541.2 7 2851.0 13 2877.4 2757.6

Short-Term Debt 1653.4 -9 1723.6 -3 1890.0 -19 2098.3 1807.8

Total Current Liabilities 7291.0 1 7226.0 4 7119.7 -1 7575.6 7246.4

Long-Term Debt 7106.5 12 7093.8 16 7039.1 11 6692.1 6328.0

Deferred Income Taxes 1678.2 19 1662.0 16 1632.6 14 1245.7 1407.3

Total Long Term Liabilities 11401.5 14 11215.6 16 11117.5 14 10836.4 10008.6

Total Liabilities 18692.4 8 18441.6 11 18237.2 8 18412.0 17255.0

Minority Interest 372.5 1 359.7 1 345.9 161 365.2 367.6

Preferred Equity 125.4 -5 127.0 -5 129.7 -5 130.9 132.4

Common Equity 7809.3 7 7726.8 9 7443.2 11 7415.9 7308.3

Retained Earnings 10388.9 12 9904.0 7 8820.5 -1 9850.2 9266.1

Total Equity 7934.7 7 7853.8 9 7572.9 10 7546.7 7440.7

Total Liabilities & Equity 26627.1 8 26295.4 10 25810.1 8 25958.7 24695.7

Profitability and Pricing

Ease of EntryDifficultEstablished companiesHigh brand recognitionGlobal presenceHigh initial investment

Strength of CustomersWidespread demandLoyal to brand recognition Increasing with global expansion

Strength of SuppliersLowerTrying to maintain current customers

Competition High Pepsi vs. Coca-Cola Very split

Substitution Moderate Lower cost items Not as much because of brand recognition Inelastic demand for tobacco and alcohol

Financial Analysis


REVENUES23100

23800

24500

25200

25900

26600

27300

28000

28700

29400

30100

30800

31500

32200

32900

33600

34300

35000

HI 34566LO 23556ME 28461CU 34566GR 4.1%

03-31-199309-30-2002

Current Revenues are $34,566

Growth rate is 4.1%

StockVal®WALGREEN COMPANY (WAG) Price 29.01993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

REVENUES7000

9000

11000

14000

18000

24000

30000

HI 29607LO 7901ME 14040CU 29607GR 14.5%

02-28-199311-30-2002

GROWTH RATE ESTIMATE12

13

14

15

16

17

18

HI 18.00 LO 13.00 ME 15.00 CU 16.00

01-29-199301-31-2003

TOTAL RETURN %-40

0

60

160

310

550

1000

HI 832.8 LO -8.8 CU 505.7 GR 19.7%

01-29-199301-31-2003

-Revenues have a growth rate of 14.5%-Current growth rate estimate is 16.0%-Total returns have a growth rate of 19.7%

StockVal®ANHEUSER-BUSCH COMPANIES INC (BUD) Price 47.51993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

REVENUES8800

9600

10400

11200

12000

12800

13600

HI 13362LO 9309ME 11170CU 13362GR 3.9%

03-31-199309-30-2002


8

9

10

11

12

HI 12.00 LO 8.00 ME 10.00 CU 12.00

01-29-199301-31-2003

TOTAL RETURN %-30

0

40

90

160

250

370

HI 302.7 LO -21.7 CU 259.2 GR 13.6%

01-29-199301-31-2003


StockVal®ALTRIA GROUP INCORPORATED (MO) Price 37.91993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

REVENUES60000

65000

70000

75000

80000

85000

90000

HI 89924LO 60269ME 72138CU 80408GR 3.0%

03-31-199312-31-2002


10

12

14

16

18

20

HI 19.50 LO 8.00 ME 13.00 CU 10.00

01-29-199301-24-2003

TOTAL RETURN %-50

-30

0

40

90

150

230

HI 188.0 LO -37.3 CU 117.6 GR 8.1%

01-29-199301-31-2003


StockVal®COCA-COLA COMPANY (KO) Price 40.51993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

REVENUES13000

14300

15600

16900

18200

19500

20800

HI 20546LO 13408ME 18793CU 19692GR 4.1%

03-31-199309-30-2002


12

14

16

18

20

HI 18.40 LO 11.00 ME 17.00 CU 11.00

01-29-199301-31-2003

TOTAL RETURN %-30

0

40

90

160

250

370

HI 323.4 LO -9.9 CU 117.7 GR 8.1%

01-29-199301-31-2003

-Revenues have a growth rate of 4.1%-Current growth rate estimate of 11.0%-Total Returns growth rate of 8.1%

Growth & Margin Check StockVal ®

M-Wtd (SP-30)Price 37.306 01/31/03

Default Growth Rate Estimate 8.8%Analyst Growth Rate Estimate 8.8%

Percent Change Actual Year Profit Momentum %

Quarter Revenue REV RPS EARN EPS EPS Ago Margin % SF REV EPS

Dec 00 8,378.7 3 5 9 12 0.48 0.43 6.7 0 +3 +11

Mar 01 8,108.6 5 6 8 9 0.46 0.42 6.7 +1 +5 +8

Jun 01 8,707.2 4 6 4 5 0.50 0.48 6.7 +1 +5 +5

Sep 01 8,521.6 6 6 5 6 0.52 0.50 7.2 +1 +5 +6

Dec 01 8,877.4 6 7 4 6 0.50 0.48 6.6 +1 +6 +5

Mar 02 8,176.8 1 2 9 10 0.51 0.46 7.2 +1 +1 +9

Jun 02 8,885.3 2 3 16 17 0.58 0.50 7.6 +1 +2 +16

Sep 02 8,626.9 1 3 11 13 0.59 0.52 7.9 0 +1 +13

T4Q 34,566.5 3 4 10 11 2.18 7.3

Dec 02 Mean Estimate Next Quarter 6 0.54 Long-Term Growth Rate Estimates

High Estimate 10 0.55 Median Estimate 10.8%

Low Estimate 2 0.51 Number of Estimates 11

Number of Estimates 11 Standard Deviation 2

Point-to-Point Growth Rates (%) Least Squares Growth Rates (%)

Years REV RPS EARN EPS Years REV RPS EARN EPS

1 3 4 10 11 1 1 3 12 14

3 4 6 7 10 3 4 6 7 9

5 4 6 7 8 5 4 6 6 8

7 4 6 8 9 7 5 6 7 8

10 4 6 8 9 10 4 6 8 10

15 6 7 10 11 15 5 7 9 10

20 7 8 9 11 20 7 8 10 12

-Profit margins have risen from 6.7% in December 2000 to 7.9% in September 2002.

-Profit margins have risen as revenues have fallen, indicating cost-cutting activity within the sector.

-Long-term estimated median growth rate is 10.8%.

DuPont AnalyticsS&P CONS. STAPLES SECTOR COMPOSITE A (SP-30) M-Wtd StockVal ®

Price 37.306 01/31/03 FYE Dec INT TAX ASSET

MARGIN% BURDEN BURDEN% TURN LEVERAGE

EBIT EBT T Sales Assets

------- ------- 1 - ---- ------- ------- ROE Acct ROE

Sales EBIT EBT Assets Equity Rpt% Adj% Adj%

2001 10.97 0.85 64.83 1.41 3.41 29.41 10.64 40.05

2000 10.98 0.86 63.59 1.44 3.42 30.60 9.82 40.43

1999 11.12 0.86 61.89 1.49 3.35 31.66 6.52 38.17

1998 10.01 0.85 63.60 1.37 3.06 22.60 14.28 36.88

1997 13.17 0.90 62.94 1.55 2.94 34.04 2.59 36.62

1996 11.02 0.87 63.81 1.54 3.11 29.04 5.85 34.89

1995 10.81 0.86 63.13 1.39 3.21 24.75 7.57 32.32

1994 10.00 0.85 62.09 1.56 3.37 28.77 2.39 31.16

1993 8.51 0.81 61.10 1.66 3.36 20.60 7.96 28.56

1992 10.31 0.84 61.76 1.56 3.14 22.57 6.16 28.72

1991 9.78 0.81 60.87 1.60 3.15 22.68 4.13 26.81

1990 9.68 0.78 59.93 1.65 3.25 25.21 6.17 31.38

1989 9.39 0.77 61.13 1.67 3.24 24.98 1.22 26.20

1988 8.92 0.82 60.75 1.70 2.95 24.01 4.54 28.56

1987 8.63 0.82 57.60 1.75 2.62 19.58 3.35 22.92

1986 8.56 0.83 56.29 1.82 2.52 19.45 1.66 21.11

-Margins (EBIT/Sales) have fluctuated between 8.5% and 13.2% over the last decade. Margins for 2001 were 10.97%.-Asset turnover (Sales/Assets) has fluctuated between 1.37 and 1.66 over the past decade. Turnover for 2001 was 1.41.-Reported ROE has fluctuated between 20.6% and 34.0% over the last decade. ROE for 2001 was 29.4%.

DuPont AnalyticsS&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd StockVal ®

Price 28.072 01/31/03 FYE Dec INT TAX ASSET

MARGIN% BURDEN BURDEN% TURN LEVERAGE

EBIT EBT T Sales Assets

------- ------- 1 - ---- ------- ------- ROE Acct ROE

Sales EBIT EBT Assets Equity Rpt% Adj% Adj%

2001 12.85 0.48 57.37 0.38 5.75 7.52 10.61 18.13

2000 18.52 0.60 63.99 0.40 5.90 17.03 6.53 23.55

1999 18.22 0.63 64.95 0.40 6.08 18.68 5.80 24.48

1998 16.86 0.60 66.13 0.42 6.00 17.09 6.74 23.83

1997 17.59 0.62 64.12 0.43 5.96 18.03 6.58 24.61

1996 17.42 0.62 64.72 0.42 5.99 17.99 6.23 24.23

1995 17.41 0.60 64.14 0.43 6.05 16.34 7.32 23.66

1994 15.99 0.62 64.87 0.43 6.11 16.96 5.76 22.72

1993 12.99 0.61 64.59 0.45 5.88 12.04 9.26 21.29

1992 12.40 0.55 64.32 0.48 5.27 5.99 14.23 20.21

1991 13.23 0.46 62.17 0.52 4.87 9.36 9.53 18.89

1990 15.58 0.51 63.29 0.54 4.76 13.21 5.81 19.02

1989 17.18 0.54 64.50 0.55 4.48 15.22 4.93 20.15

1988 16.45 0.62 64.76 0.57 4.16 15.72 6.54 22.26

1987 15.13 0.59 59.13 0.62 3.76 13.36 5.95 19.30

1986 15.17 0.61 62.32 0.69 3.27 11.22 6.75 17.97

-Margins for the S&P 500 have been greater than those for consumer staples, however, the ROE has been less. Recall, ROE in 2001 for CS was 29.41%. For the S&P 500, ROE was 7.52% in 2001.

Cash Flow AnalysisS&P CONS. STAPLES SECTOR COMPOSITE A (SP-30) M-Wtd StockVal ®

FYE Dec

2001 % Chg 2000 % Chg 1999 % Chg 1998 % Chg 1997

Net Income Reported ($ Mil) 2082.3 4 2009.2 1 1983.2 23 1611.9 -32 2368.4

Accounting Adjustment 215.3 20 179.5 254 50.7 -87 390.7 262 108.0

Net Income Adjusted 2297.6 5 2188.7 8 2033.9 2 2002.6 -19 2476.4

Depreciation & Amort 1094.5 7 1018.7 2 998.2 11 900.9 -10 1001.9

Cash Flow Adjusted 3392.1 6 3207.4 6 3032.1 4 2903.6 -17 3478.3

Capital Expenditures 1323.6 -1 1335.2 -1 1343.6 4 1288.9 -22 1651.5

Free Cash Flow Adjusted 2068.5 10 1872.2 11 1688.5 5 1614.7 -12 1826.7

Dividends Common ($ Mil) 980.0 5 934.4 5 887.6 4 857.0 10 781.8

Free Cash Flow After Dividends 1088.6 16 937.8 17 800.9 6 757.7 -27 1044.9

Net Cash From Operations 3197.4 7 2991.7 3 2904.4 12 2588.4 -18 3154.6

Net Cash From Investing -1920.6 22 -2472.6 -140 -1030.9 47 -1960.9 -19 -1647.5

Net Cash From Financing -1111.8 -54 -720.4 51 -1475.9 -117 -679.1 58 -1624.8

Other Cash Flows -7.2 57 -16.6 86 -116.9 168.0 -52 349.7

Change In Cash & Equiv 157.9 -218.0 280.7 141 116.5 -50 232.0

-Free cash flow after dividends has been positive during the past 5 years-The sector had a positive change in free cash flow during four of the past five years.

Price of consumer staples has generally been less relative to the S&P 500. It declines in expansion and grows in recession.

StockVal®S&P CONS. STAPLES SECTOR COMPOSITE A Price 36.91998 1999 2000 2001 2002 2003 2004

PRICE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.45

0.48

0.51

0.54

0.57

0.60

0.64

0.68

0.72

0.76

0.80

0.85

0.90

0.95

1.001.00

1.20

HI 1.07 LO 0.47 ME 0.80 CU 0.98

02-06-199802-10-2003

Valuation Analysis


PE RATIO RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.3

0.6

0.9

1.2

1.5 HI 1.34 LO 0.59 ME 1.05 CU 0.95 FY1 0.98 FY2 1.05

02-05-199302-10-2003

PRICE / EBITDA RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.8

1.0

1.2

1.6

2.0

HI 1.91 LO 0.81 ME 1.42 CU 1.04

02-05-199302-10-2003

PRICE / SALES RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.4

0.6

0.8

1.0

1.2

HI 1.17 LO 0.50 ME 0.96 CU 0.98

02-05-199302-10-2003

PRICE / CASH FLOW ADJUSTED RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.6

0.9

1.2

1.5

1.8

HI 1.61 LO 0.68 ME 1.29 CU 1.23

02-05-199302-10-2003

Trends

Dividends

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

S&P CONS. STAPLES SECTOR COMPOSITE A M-Wtd (SP-30)PRICE 36.6 DATE 02-07-2003StockVal®

1212

1414

1616

1818

2020

22222424

2828

3232

3636

4040

4444

50

56

64

The Ohio State UniversityFisher College of Business

Price Change % Diff SP5

1-Week -1.85 1.19

4-Weeks -7.38 3.18

QTD -5.30 0.40

YTD -5.30 0.40

2002 -6.50 16.87

2001 -8.63 4.41

2000 13.20 23.34

1999 -16.59 -36.11 FYE Dec 2002 EPS 2.22

First Call Data 2003 2004 2005

Mean Estimate 2.32 2.54 NE

Change +4% +9%

High 2.37 2.63

Low 2.26 2.46

Total 13 9

# Up 5 2

# Down 6 4

House Estimate

PE Ratio 15.8 14.4 NE

Revenues ($Mil) 33,991

Market Value ($Mil) 35,339

Shares Out (Mil) 965.0

Daily Volume (Thou) 3,293

Daily Volume ($Mil) 120.6

Dividend Estimate 0.91

Payout Ratio 39%

Retention Rate 61%

Dividend Yield 2.49%

Data Page # 1

StockVal®S&P 500 INDEX WITH OPERATING EPS (SPX) Price 829.71993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

DIVIDEND YIELD %1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

HI 3.0 LO 1.0 ME 1.7 CU 1.9

02-05-199302-07-2003

(+) Dividends are providing a higher yield than the S&P 500

EarningsStockVal®S&P CONS. STAPLES SECTOR COMPOSITE A Price 36.6

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

EARNINGS RELATIVE TO S&P 500 INDEX WITH OPERATING EPS (SPX)0.7

0.8

0.9

1.0

1.1

1.2

1.4HI 1.22 LO 0.75 ME 0.79 CU 1.16 FY1 1.15 FY2 1.14

03-31-199309-30-2002

EST EPS F12M RELATIVE TO S&P 500 INDEX WITH OPERATING EPS (SPX)0.8

0.9

1.0

1.1

1.2

1.3

HI 1.24 LO 0.88 ME 1.00 CU 1.21

05-19-199502-07-2003

GROWTH RATE ESTIMATE RELATIVE TO S&P 500 INDEX WITH OPERATING EPS (SPX)1

2

3

4

5

HI 4.43 LO 1.25 ME 1.91 CU 1.47

06-14-199602-07-2003

(-) Earnings are starting to dip as the economy starts to look promising

Earnings EstimatesS&P CONS. STAPLES SECTOR COMPOSITE A (SP-30)

First Call FY1 & FY2 Revision Trend StockVal®

FY1 DEC 2003CURRENT EST 2.32 DOWN 6.07% FROM FEB 2002

2/02 3/02 4/02 5/02 6/02 7/02 8/02 9/02 10/02 11/02 12/02 1/03 LAST

-9%

-6%

-3%

0%

3%

2.47 2.48 2.48 2.48 2.47

2.46 2.45 2.44

2.392.36

2.34 2.33 2.32

FY2 DEC 2004CURRENT EST 2.54 UP 11.89% FROM FEB 2002

2/02 3/02 4/02 5/02 6/02 7/02 8/02 9/02 10/02 11/02 12/02 1/03 LAST

-8%

0%

8%

16%

24%

2.27

2.24 2.26

2.34

2.74 2.74 2.74 2.722.66

2.612.57 2.55 2.54

Value relative to S&P 500

(-) P/E ratio is moving in the same direction as price and earnings. Earnings are starting to dip as well as the price, indicating that P/E will not be expanding in the future


PE RATIO RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.3

0.6

0.9

1.2

1.5 HI 1.34 LO 0.59 ME 1.05 CU 0.95 FY1 0.98 FY2 1.05

02-05-199302-10-2003


0.6

0.8

1.0

1.3

HI 1.11 LO 0.47 ME 0.93 CU 0.97

02-05-199302-10-2003

EARNINGS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.7

0.8

0.9

1.0

1.1 HI 1.04 LO 0.74 ME 0.83 CU 1.02 FY1 0.99 FY2 0.92

03-31-199312-31-2002

RETURN ON EQUITY RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd1.5

1.8

2.1

2.4

HI 2.33 LO 1.51 ME 1.74 CU 2.27

03-31-199312-31-2002

Value relative to S&P 500StockVal®S&P CONS. STAPLES SECTOR COMPOSITE A Price 36.9

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005


0.5

0.6

0.8

1.0

1.2

HI 1.11 LO 0.47 ME 0.93 CU 0.97

02-05-199302-10-2003

PRICE / SALES RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.4

0.6

0.8

1.0

1.2

HI 1.17 LO 0.50 ME 0.96 CU 0.98

02-05-199302-10-2003

NET PROFIT MARGIN ADJUSTED RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.80

0.85

0.90

0.95

1.00

1.05

1.10

HI 1.09 LO 0.80 ME 0.87 CU 1.02

03-31-199312-31-2002

Net profit margin is decreasing as the P/S ratio decreases. Trend toward poor future performance

MomentumS&P CONS. STAPLES SECTOR COMPOSITE A M-Wtd (SP-30)StockVal® PRICE 36.6 DATE 02-07-2003

1998 1999 2000 2001 2002 20032828

3030

3232

3434

3636

3838

4040

4242

4646

4848

50

54

The Ohio State UniversityFisher College of Business

PRICE MOMENTUM INDEX (OVERBOUGHT/OVERSOLD)-2-2

-1-1

00

+1+1

+2+2

More selling activity than buying activity

Total Return EstimatesStockVal®S&P CONS. STAPLES SECTOR COMPOSITE A Price 36.6

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

TOTAL RETURN RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.4

0.5

0.6

0.7

0.8

1.0

1.2

HI 1.10 LO 0.50 ME 0.94 CU 0.99

02-05-199302-07-2003

GROWTH RATE ESTIMATE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.68

0.72

0.76

0.80

0.84

0.88

0.92

0.96

1.00

1.04

HI 1.00 LO 0.70 ME 0.86 CU 0.83

02-05-199302-07-2003

Valuation Summary

+ Dividends, Dividend yield is higher than S&P 500 and trends toward remaining that way

- Earnings, Earnings growth is not as high as S&P 500 and is slowing

- P/E ratios are declining, it is a signal of bad things to come, not more value

Overall, the total return is too low, and will be worse with a strengthening economy



11

12

13

14

15

16

HI 15.47 LO 10.81 ME 13.47 CU 10.90

01-29-199301-31-2003

GROWTH RATE ESTIMATE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd0.68

0.72

0.76

0.80

0.84

0.88

0.92

0.96

1.00

1.04

HI 1.01 LO 0.70 ME 0.86 CU 0.84

01-29-199301-31-2003

Growth rate estimate has decreased to 10.9%. The estimate has not fallen as much as the rest of the market, causing the upward trend line.

3/02 4/02 5/02 6/02 7/02 8/02 9/02 10/02 11/02 12/02 1/03 2/03

StockVal®SP-30PRICE 37.3 DATE 01-31-03 BUY/SELL RATING 2.4 ANALYSTS 13

3636

3838

4040

4242

4444

4646

4848

FIRST CALL BUY/SELL RATING

1

2

3

4

HOLD

BUY

-Analysts have been recommending holding less consumer staples over the past year.

Recommendation

BusinessCycle indicates that the sector will under

perform due to the state of the economy Financial

Profit margins are increasing, revenues are decreasing, bad mix

ValuationPoor returns for Consumer Staples expected

Recommendation (cont’d.)

Keep Consumer Staples under-weighted Economy is still trying to rebound from recession

Consumer staples do not perform well coming out of recession

Prices, earnings and net profit margins are trending downwards

Estimate revisions and selling activity indicate skepticism about consumer staples’ future performance

Documents

Consumer Staples Sector Laura Fillman Mary Kanet