PEP – Moving a spot higher on the Long list. PepsiCo’s options implied range for earnings is only 3%. It is unlikely to trade beyond that range again despite what we are modeling as a top and bottom line beat. Q1 is a difficult comparison, and volume growth will be challenging. The valuation is not demanding, but volumes are not growing, and the consumer is sensitive to price increases.
KMB – Moving a spot lower on the Short Bias list. Q1 is a low-expectation quarter for Kimberly-Clark, with EPS estimated to be down modestly YOY. Management reaffirmed guidance at their investor day a month earlier. Q1 was guided to have a lower organic growth rate than the remainder of the year. Volumes in Q1 are expected to be relatively flat. Q1 has a low bar, but if the company can not clear it, the rest of the year will be even more challenging.
PM – Moving a spot higher on the Best Idea long list. Philip Morris International reports Q1 results this week. Management reaffirmed guidance at the CAGNY conference. Our optimism is not based on Q1 results changing investors’ expectations but on management’s narrative about the growth prospects in the U.S. market. The focus of Q1 results will be on HTUs after the disappointment in Q4, which should have improved. Zyn growth in the U.S. has continued to be stellar in the scanner data. The upcoming launch of IQOS in its first U.S. city will be another focus point. Management will emphasize the growth prospects of the U.S. market, the largest nicotine market outside of China, for non-combustible products.
RKT.LN – Moving higher on the short bias list. Reckitt Benckiser has a Q1 sales update this week. The company has been actively repurchasing shares. After each division missed sales growth expectations in Q4, reporting LFL revenue growth of 2-4% may help stabilize the shares more than the repurchases. Margin visibility is not much better than the top line.
SAM – Moving lower on the short bias list. The Boston Beer Company reports Q1 results this week. Consensus expectations are for a small loss per share and nearly flat revenue growth. Twisted Tea has remained a growth driver, but the company’s other brands have atrophied. How did the company reach this state where EBIT margins are stuck in the MSD% range? Can the new CEO, Michael Spillane, read the room? He is not new to the challenges. SAM goes lower on our short list because Dave Burwick does not leave so that the company can keep the status quo.
We will discuss position monitor moves on our Consumables Show at noon on Monday, April 21. CLICK HERE for the webcast.
