P&G previewed our Themes Call (PG)
Procter & Gamble reported core EPS growth of 1% to $1.66 in FQ2, up 2% on a currency-neutral basis, and $.01 above consensus expectations. Procter & Gamble reported organic sales growth of 6% in the quarter ended December. Pricing and volume were both up 3%. That represents a sequential acceleration from 4% organic sales growth with volume up 2%, pricing up 1%, and mix up 1%. Management said price elasticity of 20-30% is lower than historical levels. Organic growth in the US was 9% compared against 12% last year, accelerating sequentially from 4% growth compared against 16%.
Core gross margins contracted 400bps driven by 460bps of higher commodity and freight cost headwinds. In FQ1 core gross margins contracted 370bps driven by 400bps of headwinds from higher commodity and freight costs. Freight and transportation costs are expected to be an incremental $300M after-tax headwind for the year. Management said their on-shelf availability at 94% is 4% below target
The Procter & Gamble earnings report encapsulated several of our investment themes which we outlined yesterday in our Consumer Staples Themes call. Management’s expectation for gross margins to inflect lines up with our margin projections. We discussed why the current environment is enabling the pass-through of price increases to the consumer. We expect the pricing environment to continue in the coming months due to out of stocks, lower competitive intensity, less private label trade down, higher demand, and cost pressure.
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CLICK HERE for a replay of our Consumer Staples Theme call. |
In yesterday's presentation, we also outlined the convergence of restaurant and grocery delivery, future M&A, and the competitive moats for the few players that can continue to invest in the growth. For further detail on the future of food delivery CLICK HERE to see our Restaurants Themes Call from last week.
On-premise reopening drove alcohol in 2021 (STZ)
Bw166’s Beverage Alcohol Servings Index increased 4.7% to 130.7, the most significant growth seen in the index. The index measures products shipped into the market. Bw166 attributed the growth to a “substantial increase in imported products attributable to restocking of inventories worked down in 2020, reversal of tariff impacts, and small brands getting back into the market.” According to bw166 consumer spending on beverage alcohol grew 14.7% in 2021 to $289.2B boosted by the on-premise channel. Beer volumes grew 2% to 210M barrels with 82% of growth driven by imports. Wine volumes grew 4.6% to 476M 9L cases. Domestic wines grew 0.9% while imported wine grew 8.3% driven by restocking. Spirits volumes increased 9.3% to 272M 9L cases. Domestic volumes grew 6.7% while imported spirits grew 14.9%, driven by tequila and whisky. Over the past five years, beer has had a 3.7% share of servings, wine gained 0.5%, and spirits gained 3.2%. Consumer expenditures have grown at a 3.6% CAGR over the five years while volumes grew at a 0.2% CAGR for beer, 2.5% for wine, and 4.2% for spirits. Constellation Brands represents a majority of beer imports, but 2021 was driven in part by inventory restocking.
On-premise survey results (BUD, PLAY)
According to CGA’s latest survey, 25% of consumers said they visited on-premise businesses less than usual in the two weeks ended January 10. Of the respondents who visited less, 60% said they reduced visits due to COVID-19 concerns. In December 14% of respondents said they visited on-premise businesses less and 55% attributed the reason to COVID-19. 20% of respondents said they visited more than usual in the previous two weeks, down 14% from December. The remainder said they visited on-premise businesses the same amount as usual, up 3% points from December. The frequency of visits in CGA’s latest survey has remained relatively flat in the past six months. During the last weekend in August, 75% of respondents that visited on-premise businesses said they visited three or more times in the previous three months while 18% visited twice and 7% visited once. The latest survey in January showed nearly no change. Less than half of respondents said they are comfortable visiting large capacity venues like concerts and sporting venues (42%) or experiential venues like gaming bars/arcades (41%). 39% of respondents said they planned to participate in Dry January. Of the participants, 64% said they have abstained from alcohol, 21% plan to drink before the end of the month, and 15% had already not abstained as planned.
