PG sets the stage for robust consumer staples earnings reports
Procter & Gamble was the first large consumer staples company to report Q1 results on Friday. Organic sales growth was 6%, and EPS grew by 10%. Management believes consumers will use more of its products even after the stay-at-home phase as “consumption of our products is not likely to dissipate.” There is a 20% increase in consumption in distinct categories like soap, detergent, paper goods, but even pantry loading leads to higher levels of use. The most reliable product divisions were health and fabric & home care up 9% and 10% respectively while beauty and grooming were weakest up 1% and down 1% respectively. More than halfway through the quarter, management expected sales in China to be down as much as 20%, but instead declined only 8% due to strength in e-commerce. Management said recently they are seeing private label pick up share in North America while decreasing in Europe. Management believes the pantry loading will have the net effect of shifting 2% of global growth from the June quarter into the March quarter. Management maintained guidance for organic sales and EPS, while overall sales were reduced by 1% due to Fx.
NOMD shines in Nielsen report
Nielsen reported the latest four-week update of spending trends in Europe on Friday. This was the first report that captured the pantry stockpiling phase as shoppers didn’t load up on food and other household goods until the first week of March in many Western European countries. The report did not disappoint as frozen food sales continued to accelerate well beyond the LDD% growth reported in the first week of March (we are not subscribers to Nielsen, but are familiar with the results). No one expects these growth levels to last, but some have too quickly become concerned about comparisons next year. Calorie consumption is making a shift towards food at home that will last well beyond the stay at home phase of the COVID-19 pandemic. In the longer-term, consumers are also making secular shifts in meal purchases that will benefit the frozen food category and others. The demand is so high that many companies, including Nomad Foods, has simplified manufacturing to focus on the core products to keep the items in stock.
Pepsi cleared to acquire Rockstar Energy
Pepsi was approved to acquire Rockstar Energy by the FTC over the weekend. Rockstar’s loss of share from 20% when the category was much smaller to 10% reportedly helped alleviate the FTC’s concerns. Pepsi announced the $3.85B acquisition on March 11, so there weren’t a lot of concerns. Pepsi has been the distributor of Rockstar since 2009. Pepsi has been prevented by its distribution agreement with Rockstar from innovating in energy drinks or partnering with others. Expect more innovation from Mountain Dew’s Kickstart following the acquisition. Pepsi’s energy drink portfolio lags behind its rivals. Pepsi will have to up its investment in marketing and find new ways to increase the caffeine in a drink, but the category has attractive growth projections. Pepsi has said that it expects an immaterial impact on financial results this year from the acquisition.
