Highlights include Avon Products (AVP), Coca Cola Enterprises (CCE), Pepsi Bottling Group (PBG) and Procter & Gamble (PG).

A major theme at CAGNY (Consumer Analysts Group of New York) was the depth, breath and speed of the rally in the U.S. dollar in late 2008. That flight to the U.S. dollar continues now in the 1st quarter of 2009. The moves of the dollar versus many currencies were unprecedented -- one even being an 8 standard deviation event (a one in a trillion occurrence). Global risk aversion -- precipitated by the failure of Lehman -- brought about U.S. dollar strengthening as the credit crisis drove a flight to quality.

In September 2008, the U.S. and global credit markets seized, and the commercial paper markets closed for almost all companies except a few rated A-1 P-1. Retailers and distributors (which are not rated A-1 P-1) began reducing inventories to conserve cash. At the same time, consumer confidence dropped to all-time lows from both job insecurity and financial anxiety after seeing their net worth negatively impacted by falling asset prices -- especially home values and retirement funds. Consumers dramatically reduced spending, deepening the U.S. recession and fueling a global recession.

The food, beverage and household products companies were not immune to the developments, but especially those with global reach. Revenues fell not only from reduced demand from retailers and distributors, but also from negative currency translations of sales in foreign countries into U.S. dollars, since revenues from foreign subsidiaries that do not use the U.S. dollar as their functional currency are translated at current exchange rates. Also, if the company manufactures their products in the U.S. and sells them in non-U.S. markets, there are also negative translation impacts, since the effective costs of inputs are dollar-denominated.

In the 4th quarter, revenues declined 8.8% at Avon Products (AVP), 1.2% at Coca Cola Enterprises (CCE), 5.6% at Pepsi Bottling Group (PBG) and 3.2% at Procter & Gamble (PG) due to a significant portion of their sales being derived from international markets. In general, the bottom-line impact is 30% to 40% of top-line effect.

Even though consumer staples companies usually benefit from steady demand for their products, those companies with significant international sales are being impacted by negative currency translations as the U.S. dollar strengthens. The stock price is often pressured as revenue momentum and earnings momentum investors flee the stock.