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Leading analyst examines the consumer products sector in this special Consumer Products report from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info566.htm

TWST: What are the trends that have been driving the diverse group of consumer products that you follow over the past six to 12 months?

Mr. Dionisio: We’ve certainly seen impressive outperformance by the group over the last six to nine months. I think that’s been driven by a couple of different factors. First, you have the proverbial flight to quality. This sector is known as a defensive one, and in periods of economic recession or sluggish economic spending, consumer stocks generally tend to outperform, as we’ve certainly seen over the last six to nine months. Second, there has recently been a significant moderation in cost inputs, such as raw materials and advertising rates, which have helped drive operating margin expansion for most of these companies. And finally, you have the benefits of restructuring. Last year a lot of companies took the opportunity in a sluggish economic environment to streamline their cost structure and improve profitability.

TWST: Does Avon compare with Estée Lauder as an investment?

Mr. Dionisio: I still have a buy rating on Avon (NYSE:AVP). I think it’s a tremendous company for the long term, but they’ve certainly had a great run in their stock price, which is perhaps the reason why I’m a little less bullish on it right now than I was six months ago. Nevertheless, Avon continues to display strong growth in the United States, driven in no small part by strong recruiting trends, which have resulted from two main factors. One is the rollout of a relatively new program called Sales Leadership, which enables sales representatives to recruit additional representatives and train them, because they’re paid on their productivity. The second factor is rising unemployment in the US, which has also helped recruiting trends for both Avon and Tupperware. As more people are out of work, they’re looking for additional earnings opportunities, which direct selling can provide. So despite a difficult economic situation in Argentina and some other Latin American markets where Avon has a significant portion of their sales, the company has, again, displayed such solid growth in the US that earnings momentum continues to be strong. It’s important to note that recruiting trends are a very important leading indicator for future performance, and these strong recruiting trends bode well for sales growth in future quarters.

TWST: What is your overall message then to investors who are looking at consumer products today?

Mr. Dionisio: There’s a fair amount of concern in the market that when the economy bounces back, a defensive sector such as consumer products will underperform. However, it’s important to remember the period from 1995 to 1998, when this sector significantly outperformed a bull market that was seeing strong economic growth, and this outperformance was driven by a meaningful acceleration in earnings growth that is also present today. A lot of the factors that drove outperformance then are just as present today. Also, many of these companies are finally starting to realize the benefits of acquisitions that were made three or four years ago, when these companies used their peak stock multiples as currency to make large acquisitions. So the confluence of these key factors should drive enhanced earnings growth over the next several quarters, which I expect to result in continued stock price outperformance, even in a strong bull market.

This special report includes:

1) Consumer Products Companies - In an in-depth (3,600 words) Analyst Interview, Rommell T. Dionisio, Senior Vice President in Friedman, Billings Ramsey & Co., Inc's Equity Research Group, examines the outlook for the sector and shares specific stock recommendations.