These consumer-staples stocks could take a hit from the port strike

By James Rogers

The dockworkers' strike could impact a number of names in the consumer-staples space, warns Bank of America.

The U.S. port strike, which is now in its third day, could impact a host of consumer-staples companies spanning whiskey, fruit, pasta sauce and beauty products, according to Bank of America.

The strike by the International Longshoremen's Association has shut down ports from Maine to Texas and has also thrust U.S. domestic and global supply chains into the spotlight.

If the strike drags on, Jack Daniel's parent Brown-Forman Corp.'s (BF.A) (BF.B) whiskey business could take a hit, according to Bank of America analysts. "In our view, a prolonged strike might negatively impact [Brown-Forman]'s international whiskey sales," wrote the analysts in a note released Wednesday. Bank of America added that about 50% of Brown-Forman's depletions are comprised of whiskey produced in Louisville, Ky., while 55% of total company sales are outside the U.S. Depletions refers to cases sold to retailers such as bars and liquor stores.

Related: This shipping stock is 'in an enviable position' for a protracted port strike, says analyst

Food giant Campbell Soup Co. (CPB) could also be among the companies impacted by a protracted strike. "An extended strike might prevent [Campbell Soup] from importing Rao's pasta sauce," wrote Bank of America analysts. "Rao's produces finished goods in San Marzano, Italy, and imports through New York/New Jersey and also uses the port of Jacksonville/Savannah to import raw materials for its Georgia production facility."

Beverage company Keurig Dr. Pepper Inc. (KDP) could see imports affected by a drawn-out port dispute. "[Keurig Dr. Pepper]'s beverage production facility in Ireland serves as the company's second manufacturing plant for beverage concentrate, manufacturing Dr. Pepper, Canada Dry, 7UP, Big Red and Sunkist," the analysts noted. "A prolonged strike may impact [the company]'s ability to import beverage concentrate from Ireland and as a result negatively impact sales."

Banana imports and seasonal products from fresh fruit and vegetables company Dole PLC (DOLE) could also be affected. "With about 40% of U.S. sales exposure and a large percentage of products harvested/packed/processed overseas, we would expect the company to be negatively impacted in a scenario where the strikes remain over an extended period of time," said Bank of America. However, with Dole operating its own shipping fleet, the analysts noted that delayed shipments could be offset by higher shipping rates.

Related: This rail stock could benefit from port strike, analysts say

Margaret Kidd, associate professor of supply chain and logistics at the University of Houston, highlighted the strike's potential impact on time-critical deliveries of fruits and vegetables in an interview with MarketWatch last week.

A prolonged strike could also make it more difficult for Tyson Foods Inc. (TSN) and Pilgrim's Pride Corp. (PPC) to export chicken from the Southeastern U.S., according to Bank of America.

For cosmetics and skincare-products maker E.l.f. Beauty Inc. (ELF), the port strike could be felt in its finished-goods inventory. "The strike may impact inventory levels and ability to move new products to market," the Bank of America analysts wrote. "Approximately 80% of E.l.f.'s products are manufactured in China, which may impact the company's ability to replenish products and introduce innovation."

Related: U.S. ports strike could create disruption, but opportunity for these distribution companies

However, some companies are well positioned to avoid the worst of the strike's fallout. Bank of America noted recent comments from spices maker McCormick & Co. Inc. (MKC), which reported third-quarter results Tuesday. "From an inbound-supply planning perspective, MKC believes that it is well insulated from short-term disruptions given that it has planned for a scenario like this since April," the analysts said.

Speaking during a conference call to discuss the company's results, McCormick & Co. Chief Executive Brendan Foley said the company is "broadly covered" in regard to the port strike. "We are monitoring it daily, though, just to make sure that we don't have any interruption of supply, but we feel like we planned for this," he added.

Frozen-potato seller Lamb Weston Holdings Inc. (LW) should also be able to withstand the port strike, according to Bank of America. "In a scenario where potato frozen products imported from Europe are unable to reach the East Coast, we believe that [Lamb Weston] would be able to service customers given its production capabilities in the U.S.," the analysts wrote.

Related: Port strike could bring biggest impact to these retailers, says Truist

In addition to consumer staples, the strike's impact on the retail sector is being closely watched. In an open letter sent to President Biden on Wednesday, the National Retail Federation urged him "to take immediate action," to resolve the strike. The NRF also warned that retailers won't be able to get their holiday merchandise and added that many other industries will be negatively impacted.

"With the busy fall shopping season underway, big retailers expect to withstand the strike (for now) as products were brought in earlier than usual while other cargoes were diverted to West Coast ports in the event a strike occurred," wrote Jackie Rogowicz, an investment analyst at Penn Mutual, in a note Thursday. "Nevertheless, executives have stated a strike lasting a week or longer would increase shipping costs and potentially trigger product shortages."

Citing data from Arbor Data Science, Penn Mutual cites Walmart Inc. (WMT), Ikea, Samsung (KR:005930), Bob's Discount Furniture and LG Corp. (KR:003550) as the top importers at East Coast and Gulf ports, followed by Home Depot Inc. (HD), Continental AG (XE:CON) (CTTAY), Hyundai Motor Co. (KR:005380), Dollar General Corp. (DG) and General Motors Co. (GM)

Related: As port strike begins, these air-delivery stocks could be poised to benefit

Earlier this week Truist Securities warned that Dollar Tree Inc. (DLTR), Five Below Inc. (FIVE), Target Corp. (TGT), Best Buy Co. Inc. (BBY) and Walmart could see the heaviest impacts from the port strike.

In a note released Wednesday, Oppenheimer analyst Rupesh Parikh examined the strike's impact on consumer behavior at Costco Wholesale Corp. (COST) stores in New Jersey.

"During our store checks earlier today in northern N.J., we observed behaviors similar to the start of the pandemic with [Costco] stores again packed with customer traffic," he wrote. "This appears to be driven by supply concerns with recent port strikes. At the Wayne, N.J., location, toilet paper, paper towels and water were all fully out of stock. Outside of those products, we observed sporadic out-of-stocks in detergent, bread and other items, but nothing like 2020."

"We expect a seemingly material shorter-term bump for [Costco] and other club players related to this buying, and to a lesser extent, hurricane-related spend," Parikh added. "The neighboring BJ's (BJ) store in Wayne, N.J., had better water supply, but some out-of-stocks in paper towels."

-James Rogers

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10-03-24 1311ET

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