Key Themes From CAGNY

Last week, Hedgeye Consumer Staples Sector Head Rob Campagnino attended the 2013 Consumer Analyst Group of NY (CAGNY) Conference. His Twitter feed (@HedgeyeStaples) was quite active with takeaways from the conference; here's his review:

 

Each year, 25-30 of the largest and most recognizable names in consumer staples – from cigarettes to eyeliner and from beer to hand sanitizer, attempts to lay out its objectives for the coming year for over 600 analysts and portfolio managers.  We have been a regular attendee for many years now and we wanted to offer our views coming out of CAGNY 2013.

To be frank, we would characterize CAGNY 2013 as largely uneventful and in some cases downright boring – no preannouncements or big strategic announcements (HNZ supplied that the week before).  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:

  1. 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.
  2. Advertising – companies have to communicate the benefits and differences of product offerings, old and new, to both consumers and retail partners
  3. Emerging markets – characterized as a “once in a generation” opportunity, the potential represented by an expanding global middle class was consistently referenced
  4. 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
  5. 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.  “Bolt-on” or smaller “tuck in” acquisitions were a consistent theme, but nothing transformative seemed on the horizon.
  6. Cash – dividends are share repurchases seem to be the order of the day for the cash generative consumer staples sector.
  7. Economic climate – The consensus seemed to indicate that the consumers’ health was improved versus the same time last year, but was still “fragile”.  We saw more optimism for 2H ’13 and ‘ for ’14.

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 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?

 

Bottom line, sometimes a boring consistency is a good thing, and the consistent nature of the staples sector was what was on display at CAGNY.

 


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