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Market Savvy | SAVVY CONFIDENTIAL / A Briefing for
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Amid 'Defensive' Rush, Hain Shows the Risks

May 11, 2000|Bloomberg News, Times staff

A good defense can be the best offense in football, or so the saying goes. But what about in the stock market?

Investors on Wednesday continued to snap up many classic "defensive" stocks in such sectors as food, consumer products and utilities.

Defensive stocks are those whose earnings outlook might not be spectacular but is at least fairly dependable. And the stocks usually trade at much lower price-to-earnings multiples--especially compared with tech stocks.

But going defensive also has its risks, as investors in such once-dependable names as Procter & Gamble and Gillette have found in recent years.

And on Wednesday, Hain Food Group (ticker symbol: HAIN) plummeted $6.25 to close at $22.75 on Nasdaq a day after the largest U.S. health-food company said some of its units still aren't producing goods fast enough to meet demand.

Hain, whose products include a Weight Watchers line, Westsoy nondairy drinks and Terra Chips snacks, said it expects to resolve the problems at its Earth's Best baby food and Terra units in the next three to six months.

It also said it had lower-than-expected sales to United Natural Foods Inc., one of its biggest distributors, because that firm is cutting down inventories.

"Terra Chips is growing at a 50% rate, and the demand just outperforms what our capacity is," Chief Executive Irwin Simon said.

The company hopes to alleviate the lag time in delivering the snacks, which is 21 days, with a new plant that should be running in September. It also is attempting to fill strong demand for the chicken rice and sweet potato flavors of Earth's Best baby food.

Uniondale, N.Y.-based Hain made the announcement in its earnings release for its fiscal third quarter ended March 31. Net income rose to $4.8 million, or 25 cents a share, from $3.2 million, or 23 cents, a year earlier. It was expected to earn 25 cents, the average estimate of analysts polled by First Call/Thomson Financial.

Hain expects to complete its acquisition of Celestial Seasonings Inc. "shortly after" the companies' shareholder meetings May 30. The transaction will make Hain the largest U.S. maker of specialty hot teas such as Celestial's Sleepytime and Lemon Zinger.

Still, the company will be taking charges related to the acquisition a quarter earlier than expected because people had forecast it would close in July, Simon said. Hain will take about 8 cents a share in related charges, he said.

Shares of Celestial tumbled $7.88 to close at $28.13 on Nasdaq.

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On the Defense

Some investors, frazzled by the tech sector's continuing decline, are snapping up classic "defensive" stocks--shares of companies whose sales and earnings growth tends to be dependable, if often unexciting. A sampling of shares rising Wednesday even as the broad market fell:

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Ticker 52-week Wed. Wed. Stock symbol low close change Avon AVP $23.31 $41.81 +$1.63 Duke Energy DUK 45.75 60.63 +2.19 Exxon Mobil XOM 69.88 81.50 +2.06 Gannett GCI 58.31 60.38 +1.13 Gillette G 28.19 37.81 +0.63 McDonald's MCD 29.81 38.63 +1.63 PepsiCo PEP 29.69 39.19 +1.50 SBC Commun. SBC 34.81 45.13 +2.81 Unicom UCM 30.94 41.50 +0.81 Wal-Mart WMT 38.88 56.69 +3.69

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Sources: Times research, Reuters

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