We would characterize CAGNY 2013 as largely uneventful and in some cases downright boring. We didn’t hear much that changed our thinking relative to how we came into the year or how we left Q1 earnings season. Briefly, the key themes running through the presentations were:
- Innovation – it’s the cost of doing business in the “new normal”. Consumers will pay a premium for value, perceived or real. Given the prominence of this topic, we wonder if companies are finding it necessary to spend more to stay in place?
- Advertising – companies have to communicate the benefits and differences of product offerings, old and new, to both consumers and retail partners
- Emerging markets – characterized as a “once in a generation” opportunity, the potential represented by an expanding global middle class was consistently referenced
- Productivity – doing more with less is necessary in a world where pricing is elusive, consumers are fickle, private label is growing and commodities are a wild card
- M&A – not a presentation topic, but certainly a topic of cocktail conversation – who’s next? We don’t see the Heinz deal as a catalyst for wide spread M&A across staples. However, some names make sense as potential targets – HSH, for one.
Where did our thinking change?
We won’t rehash the presentations, but as a quick summary:
CPB – less likely to want to short as core soup business potentially stabilizes
KRFT – one of our favorite presentations, would be a buyer lower – upside to low $50s
HSH – again, one of our favorite presentations, more constructive
BG – doing more work here on the long side after an awful quarter, good long-term theme
PG – less impressed with potential progress on top-line, but cost-savings likely preserve EPS
CLX – can’t abide by the multiple, but with good visibility on margins and innovation, tougher short
MDLZ – feels earlier, but risk/reward profile strikes us as very favorable over longer duration
NWL – we liked the story going in, presentation reinforced our belief that the stock can continue to rerate.
KO – interesting commentary on incremental bottler consolidation. Does Iberia represent a new potential acquirer for German assets?
We are, of course, happy to discuss any and all names in greater detail.
Enjoy your Sunday,