Writing in the 2016 Post Election Outlook: A Compendium of Cross-Cap Insights and Investment Ideas , analysts at Wells Fargo Securities said: "We expect the election results to generally impact the beverage sector favorably by reducing the risk of broad sugar taxes and potentially improving corporate tax rates and the ability of multinational companies to repatriate cash held overseas in a tax-efficient manner. However, the 'Trump Effect' may hurt Mexico sales and exports."
As for food, they added: "Potential trade restrictions pose the biggest headwind for export-heavy protein processors. Companies with significant operations in Mexico that import production into the US may be under pressure."
While Mexico, the UK, France, and several US cities have instituted soda taxes (Berkeley and Philadelphia to date, with San Francisco; Oakland, Albany, and Boulder to follow shortly, and possibly Cook County, IL ), a Republican administration is unlikely to push for action at a federal level, predicted Wells Fargo analysts.
“While we think the risk of a broader adoption of sugar taxes across the country is fairly limited given the limited evidence that these taxes serve their intended purpose of reducing obesity, we think the Republican-led government reduces that risk further, to the benefit of Coca-Cola, Dr Pepper Snapple Group, PepsiCo and Monster Beverage Corp.”
As for corporate taxes, they added: “We believe the Republican-led government will likely adopt corporate-friendly tax policies, which would benefit all beverage manufacturers, particularly those with extensive cash overseas (Coca-Cola), whereby these companies may be able to repatriate some of these funds in a tax-efficient manner.”
Could Trump's isolationist stance negatively affect food companies?
However, companies with high exposures to Mexico and those that import goods from Mexico may be negatively impacted by potential tariffs on imports and a decline in the Mexican Peso, they warned.
“President-elect Trump’s platform of isolationism, particularly as it relates to Mexico, will likely have negative repercussions for beverage manufacturers. Constellation Brands [best known for Robert Mondavi, Ravenswood and Blackstone wine brands, Corona beer and Svedka Vodka] imports its beer brands from Mexico, and may be subject to significant tariffs in the future.
“We note, this would likely be offset by lower manufacturing costs in light of a devalued Mexican peso. The majority of other US beverage companies have a sizable exposure to Mexico as a percentage of total sales—Coca-Cola (~5%), PepsiCo (~12%), and Dr Pepper Snapple Group (~8%)—which could be negatively affected by a deterioration in the Mexican peso and the broader Mexican economy.”
(Click HERE to read what Marcelo Melchior, president and CEO of Nestlé's operation in Mexico, had to say about a Trump administration.)
“The time is now for Congress to act on the Trans Pacific Partnership [a yet-to-be-ratified trade agreement between 12 Pacific Rim countries including Japan and Australia, but excluding China], which is integral to the future growth of the U.S. meat and poultry industry. The agreement offers numerous economic opportunities which will create more American jobs and have a tremendous multiplier effect throughout the US economy.”
“The TPP agreement will reduce or eliminate import tariffs on US meat and poultry products in the world’s fastest growing economic region, making US products more competitive and providing an opportunity for industry growth. Lower tariffs and increased market access will expand export opportunities in key markets such as Japan and Vietnam. At the same time, it will promote transparency, drive innovation and support robust labor standards.
“Failing to act on the TPP agreement is economically significant and potentially devastating. For example, Australian beef exporters currently enjoy an 11 percent tariff advantage in the Japanese market as a result of the Australia-Japan free trade agreement. In 2015, this tariff advantage cost the US nearly $300m in lost beef sales. As each year passes without the TPP, Australia will continue to benefit as its tariff declines in Japan, while US beef producers and processors will lose against this significant trade advantage.”
Barry Carpenter, president and CEO, North American Meat Institute
‘We expect Trump to seek to limit the production of goods in foreign countries by US-based companies’
As for trade in general, any food or beverage manufacturer with significant operations abroad could be feeling a little unsettled right now, argued the Wells Fargo analysts, given that Trump has committed to withdrawing from the yet-to-be-ratified Trans Pacific Partnership (TPP) and renegotiating NAFTA and other agreements.
“Generally, we expect Trump to pursue changes to limit the production of goods in foreign countries by US-based companies.”
As for exports, they added: “Poultry, pork and beef processors generally export 15-20% of their production. As such, any restrictions limiting US exports could hurt sales volumes and consequently, domestic selling prices.
"Potential new tariffs restriction on goods imported into the US could be met with increased tariffs on US exports."
“Significant protein export markets such as Japan, Korea, Mexico and China have been central in Trump’s trade discussions…
"Potential trade disruptions could [also] adversely affect Tyson Foods’ US-based business, while increasing the attractiveness of acquisition candidates in foreign countries.”
Other companies with overseas operations in Mexico such B&G Foods and Constellation Brands may also come under pressure, they predicted (although the CEO of the latter told analysts on Friday that Trump's presidency would have "no impact whatsoever in the near term"):
“Trump has mentioned instituting a 35% tariff on some goods made in Mexico and sold in the US.”
“While it is too early to look at specific policies, clearly President-elect Trump and Republican leaders in Congress will be focused on jump-starting the economy. They know all too well that American voters didn’t buy the Republican brand, but are giving Republicans the keys to the country with the expectation of getting the economy working again. A broad agenda is already starting to take shape, including:
- Rolling back the most onerous executive orders signed by President Obama;
- Halting all major new regulations;
- Passing a federal funding measure;
- Nominating a Supreme Court justice; and
- Beginning to work on both short and longer term tax reforms.
“Considering this broad agenda, there will be opportunities to finish up some outstanding ABA priorities such as harmonizing the myriad of upcoming labeling deadlines, seeking relief from the onerous Hours of Services regulations impacting bakery distribution, and possibly slowing down the DOL’s overtime regulation.
“In addition, it looks like the numerous costly regulatory proposals that were in the pipeline pre-election will all come to at least a temporary halt. Proposals such as joint employer, quick union elections, ethanol emissions, sodium and fiber all are under the microscope. The big unknown is what will happen to the Affordable Care Act.”
Robb MacKie, President and CEO, American Bakers Association
"There is a great deal of uncertainty at this point, but we believe supporting organic has bipartisan appeal... Already OTA is engaging the United States Department of Agriculture and the Trump-USDA transition team to inventory priorities. As an industry we have a great business case to make for the role organic plays in rural development, job creation , and market growth. The organic sector has also made significant strides integrating organic across USDA programs and in building capacity at the National Organic Program over the last eight years. Those gains will need to be protected."
Laura Batcha, CEO/executive director, Organic Trade Association