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Pockets of Strength in Consumer Staples Stocks: KO, MO, PG Earnings

·5-min read

Companies in the Consumer Staples sector continue to see supply chain issues, but not as severe as before.

Some are seeing the benefit of away-from-home consumption, evidence of a more normal operating environment (of course the China shutdown has the opposite effect).

There is also some concern about inflation, which remains high and continues to affect real income in the hands of the consumer, as well as personal savings.

Those with significant exposure to Europe are seeing currency headwinds.

Whether it’s a return to normal or not, consumers remain concerned about healthcare and willing to open their wallets for it.

Cleaning products of course have relatively inelastic demand and tend to benefit from brand loyalty, supportive demographics and other factors rather than a consumer’s disposable income.

These are pretty much the trends noticed in the following earnings reports:

The Coca Cola Company KO reported June quarter earnings that beat the Zacks Consensus Estimate by 4.5% on revenue that beat by 5.3%.

While there were revenue surprises across most segments, the biggest surprise was in bottling (9.9%), followed by EMEA (8.3%), Asia-Pacific (5.5%) and North America (3.7%). Latin America was about in line with estimates while Global Ventures disappointed, missing by 5.2%. All except Global Ventures grew from the year-ago quarter. Global Ventures was impacted by negative currency effect and helped by easier comps because of the Costa retail store closures last year.

Bottling also posted the biggest operating income surprise, topping analyst estimates by 80.7%. EMEA surprised by 15.7% and North America by 8.0%. Asia Pacific, Latin America and Global Ventures missed by a respective 1.1%, 10.0% and 52.4%.

Analysts expect all except the Asia-Pacific segment revenue to grow year over year in the current quarter although the expected decline in the segment is just 0.4%. EMEA is expected to grow 0.3%, Latin America 4.8%, North America 13.8%, Global Ventures 4.0% and Bottling 3.7%.

As far as operating income is concerned, analysts are looking for year-over-year declines in Global Ventures and Bottling by a respective 2.6% and 20.2%. Operating income in EMEA, Latin America, North America and Asia-Pacific are expected to increase 0.7%, 0.09%, 11.3% and 1.8%, respectively.

Coca Cola shares have a Zacks Rank #3 (Hold).

Altria Group’s MO earnings beat the Zacks Consensus Estimate by 0.8% on sales that missed by 0.4%.

Sales declined across the Smokeable Products, Oral Tobacco and All Other segments. But while Smokeable Products revenue (90% revenue share) beat analyst estimates by 10.3%, Oral Tobacco (10% share) missed estimates by 1.5% and All Other (less than 1%) missed by 73.7%.

As a result of the secular decline in tobacco sales and the impact of inflation and other pressures on consumers that hurt volumes in its premium brands, total Smokeable Product volumes declined 10.9%, more or less in line with estimates. So it was clearly the stronger pricing that saved the day (and quarter) for Altria.

Smokeable Products (86% of profit) also beat analysts’ operating income estimates by 1.1% while oral tobacco missed by 7.0%. Operating loss in All Other improved 3.2%.

Current-quarter Smokeable Products revenue is expected to decline 5.2% year over year, Oral Tobacco to increase 2.0%. All Other is expected to increase 20%. Operating income is however expected to increase 7.8% in Smokeable Products and 3.6% in Oral Tobacco, with operating loss in All Other improving 50%.  

Procter & Gamble’s PG earnings missed the Zacks Consensus Estimate by 1.6% on revenue that beat by 0.6%. About 43% of the business performed below expectations with the balance performing better than expected:

Fabric & Home Care (35%) grew 4.2% but missed by 0.7%. Baby, Feminine & Family Care (25%) grew 3.3% and beat by 0.6%. Beauty sales (18% of total) fell 1.4% to beat estimates by 0.2%. Health Care (13%) grew 5.3% to beat by 4.2%. Grooming (8%) decreased 3.5% to miss by 4.1%.

Operating income fell in all except the Fabric & Home Care segment and this was the only segment that beat analyst estimates. Beauty missed estimates by 16.7%, Grooming by 13.5%, Health Care by 10.7% and Baby, Feminine & Family Care by 31.7%.  Fabric & Home Care operating income beat estimates by 21.6%.

In the current quarter:

Beauty revenue is expected to grow 1.2% year over year and operating income to decline by 0.8%.

Grooming revenue and income are expected to grow 1.2% and -4.3%.

Health Care revenue to increase 3.8% and income by a sliver.

Fabric & Home Care revenue is expected to increase 3.2% and income expected to decline 18.3%.

Baby, Feminine & Family Care segment is expected to generate revenue growth of 1.8% and income growth of 32.3%.

One-Month Price Performance

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