J&J’s spinoff (PRGO)
Johnson & Johnson’s Consumer Health segment reported operational sales growth of 11.3% in FQ1, accelerating from 6.4% in FQ4. U.S. sales grew 11.4% while international sales grew 4.4%. Volume growth in OTC was driven by an “exceptionally strong cough, cold, and flue season most pronounced in Europe and retailer restocking in the U.S. Major growth contributors included Tylenol and Motrin analgesics, upper respiratory products, Imodium, and international smoking cessation products. Consumer Health operating margins expanded 20bps to 22.3% driven by price increases offset by input cost inflation.
Management confirmed on its conference call yesterday that it remains focused on separating its consumer healthcare business Kenvue this year. Management reiterated that the bankruptcy of LTL will not have an impact on the Kenvue IPO and the talc liabilities will remain with J&J. Management noted that Q1 benefited from re-stocking and Q2 will benefit from an easy comparison to last year’s supply constraints. I expect an IPO well before the company’s business review on December 5 that will highlight the remaining segments. Kenvue’s IPO will bring more analyst coverage to the consumer healthcare sector, benefiting Perrigo.
Canada food disinflation (LBLCF)
Food prices, including on and off-premise in Canada increased 8.9% YOY in March. Food at home CPI increased 9.7% in March, decelerating from 10.6% in February and 11.4% in January. The slowdown was driven by fresh produce. Unlike in the U.S., some categories of food at home accelerated in March sequentially including meat (from 6.2% to 6.6%), bakery (from 13.9% to 14.2%), and frozen food (from 11.5% to 14%). Disinflation was driven by fresh vegetables (from 13.4% to 10.8%), fresh fruit (from 10.5% to 7.1%), eggs (from 13.6% to 11.8%), and pasta (from 23.1% to 14.2). Canada’s disinflationary food trend lags the U.S. The grocery industry is less competitive than the U.S. but is linked due to the high degree of trade.
Farm bill (WMT)
Our Washington Policy analyst JT Taylor wrote yesterday, “House and Senate Agriculture Committees have been laying the groundwork for months on a new farm bill, and activity will pick up this week. Whether Congress can approve legislation before September 30 is debatable, with the biggest hurdle to consensus being partisan differences over food assistance programs. The majority of all farm bill spending is for the Supplemental Nutrition Assistance Program (SNAP), formerly known as the food stamp program, which has been authorized in the farm bill since 1973.
A number of House Republicans are pushing to strengthen the work requirements for SNAP beneficiaries, and House Speaker McCarthy intends to include language-strengthening work requirements for anti-poverty programs as part of his debt limit proposal. Democrats oppose the new work requirement proposal, and it is unclear how and when the issue will be resolved. If an agreement cannot be reached by September 30, lawmakers are expected to pass a short-term extension of current programs.” The Senate Agriculture subcommittee will hold a hearing on food stamps today. Dusty Johnson, R-S.D., is proposing to raise the work requirements for recipients to 65 years of age, up from 49 currently.
16% of U.S. households are SNAP recipients. SNAP spending accounted for 13% of total food and beverage sales in 2021 and 12% in 2022. The cost of the SNAP program is more than double the annual spending level before the pandemic. For any follow up questions on SNAP proposals we would encourage you to reach out to JT Taylor.
