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General Mills’ Top Priority Is to Restore Volume-Driven Organic Sales Growth

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Image: General Mills’ shares have been under pressure as of late. By Brian Nelson, CFA On June 25, General Mills (GIS) reported mixed fiscal fourth quarter results with revenue coming up short of forecasts, but non-GAAP earnings per share exceeding the consensus estimate. In the fourth quarter, net sales dropped 3% driven by lower pound volume and unfavorable net price realization and mix, while organic sales were also down 3%, in line with expectations. Adjusted gross margin was down 220 basis points. Adjusted operating profit of $622 million was down 22% in constant currency, while its adjusted operating profit margin fell 330 basis points year-over-year. Adjusted diluted earnings per share came in at $0.74, which was down 27% in constant … Read more

Positive Pricing Elasticities Continue to Power Pepsi

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Image: Effective net pricing continues to be strong at Pepsi. Image Source: Pepsi By Brian Nelson, CFA  On July 13, PepsiCo, Inc. (PEP) reported excellent second-quarter 2023 results. The firm’s pricing power continues to impress as the executive team manages modest losses in organic volume with huge effective net pricing increases. For the 12 weeks ended June 17, 2023, organic volume dropped 2.5% while effective net pricing increased a whopping 15% (effective net pricing increased 14% in PepsiCo Beverages North America). Operating income surged more than 75% in the quarter. For the 24 weeks ended June 17, 2023, free cash flow of $506 million was 32% higher than the $383 million mark in the same period a year ago. Pepsi … Read more

How Much More Will Consumers Pay for McCormick Spices?

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Image: Pricing growth remains the story at McCormick, but for how long? Image Source: McCormick By Brian Nelson, CFA Those that know McCormick & Company (MKC) are aware of its dominance in spices and seasonings, but just how much more can the consumer pay for its products? So far so good it seems, but we have doubts consumers are going to keep paying up and up ad infinitum for its flavors. Something’s got to give eventually, and that could result in a big quarterly miss, in our view. When McCormick reported second-quarter fiscal 2023 results on June 29 for the period ending May 31, 2023, all its sales growth came from pricing actions, with McCormick experiencing a 0.9% decline in … Read more

Fed Winning the Fight Against Inflation, Food-at-Home Prices Easing

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Image: CPI-U, not seasonally adjusted. The 12-month percent change in the pace of inflation for all items has fallen from north of 9% in June 2022 to 5% in March 2023. Image Source: BLS By Brian Nelson, CFA The Bureau of Labor Statistics (BLS) released the Consumer Price Index for All Urban Consumers (CPI-U) on April 12, and it showed that the Fed is winning its fight against inflation. The CPI-U rose just 0.1% in March on a seasonally adjusted basis, down 0.3 percentage points from the increase in February. During the past 12 months, the all-items index has advanced 5.0% before any seasonal adjustments, a level that is still higher than the Fed’s long-term target, but not one indicative of … Read more

General Mills Experiencing Tremendous Pricing Power, Positive Elasticities

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Image Source: Mike Mozart By Brian Nelson, CFA Cereal maker General Mills (GIS) continues to flex its pricing power. The company’s third-quarter results for its fiscal 2023, released March 23, showed a company that is raising prices almost at will and driving tremendous adjusted operating profit expansion, while organic pound volume remains essentially flat. The company continues to optimize its revenue model as it forgoes volume expansion in favor of pricing growth, and we would expect further price increases across its product line-up for some time. With adjusted operating profit surging, price elasticities remain in its favor, much to the detriment of the cash-strapped consumer, which can only expect more food-at-home inflation. Shares of General Mills yield ~2.5% at the … Read more

PepsiCo’s Pricing Actions Fantastic; Needs Better Free Cash Flow in 2023 to Cover 10% Dividend Hike

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Image Source: PepsiCo By Brian Nelson, CFA On February 9, PepsiCo, Inc. (PEP) reported impressive fourth-quarter 2022 results that showed organic revenue growth of 14.6% and core constant-currency earnings-per-share expansion of 10%. The company also added to its long streak of consecutive annual dividend increases, raising the payout by 10%, to $5.06 per share on an annualized basis, starting with the June 2023 payment. PepsiCo has rewarded dividend growth investors with 51 consecutive years of dividend growth, and we have no reason to believe that the streak will be broken anytime soon. The firm expects to buy back $1 billion worth of its shares during 2023. PepsiCo showcased tremendous product pricing power. During the fourth quarter, volumes across its portfolio … Read more

Fed Raises 75 Basis Points; Food Price Inflation Continues to Wreak Havoc on Consumer Budgets

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Image Source: Federal Reserve The Fed upped its key benchmark rate to the range of 3%-3.25% on September 21, but it may not be enough to stem the rise in inflation. We think the market has further room to fall. By Brian Nelson, CFA We think the Fed is looking to crush the economy and break the will of businesses to raise prices. Unfortunately, there is only so much that hiking the federal funds rate can do, and much of the inflation that is hurting the consumer is coming in the form of food prices, and this doesn’t look like it will abate anytime soon. I had warned about a coming market “flush” in a late August video, in part … Read more

Nelson Nailed Food Price Inflation Risks; Markets Heading Lower

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Image Source: Liz West “Milk was up 17%, poultry up 15.9%, while eggs were up 39.8% in the August CPI report.” By Brian Nelson, CFA Hi everyone: I put together a video several weeks ago on August 27, explaining how consumers were tapped out due to inflationary squeezes, particularly at the grocery store, as a big reason for being incrementally more bearish on the equity markets. The August CPI report, released September 13, showed that consumer prices advanced 8.3% on a year-over-year basis and are still accelerating, increasing 0.1 percent from July, where the pace was unchanged. Milk was up 17%, poultry up 15.9%, while eggs were up 39.8% in the August CPI report. We don’t think the market was … Read more

Large Cap Growth Has More Room To Run

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“The stylistic area of large cap growth has been one of our favorite areas because of the strong net cash rich, free cash flow generating, secular growth powerhouses that make up much of the space. The image is a rundown of the key Valuentum statistics for the top 15 holdings of the Schwab U.S. Large Cap Growth ETF (SCHG). We believe where large cap growth goes, so does the broader market, considering the hefty weightings of some of these stocks in other broad-based indices. Based on the high end of our fair value estimate range for this group of bellwethers, the broader U.S. markets still have room to run, to the tune of 7%+, despite the many highs already reached … Read more

PepsiCo Flexes Its Pricing Power

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Image Shown: PepsiCo Inc is adeptly navigating various inflationary, labor, and logistical hurdles. Investors have started to warm back up to the name and its impressive pricing power over the past several months. By Callum Turcan On October 5, beverage and snack giant PepsiCo Inc (PEP) reported third-quarter earnings for fiscal 2021 (period ended September 4, 2021) that beat both consensus top- and bottom-line estimates. PepsiCo also raised its full-year guidance for fiscal 2021 in conjunction with the report. Earnings Snapshot The firm’s GAAP revenues grew by 12% year-over-year and its GAAP operating income climbed higher 5% year-over-year in the fiscal third quarter. Strength at PepsiCo’s snacks and beverage business in the Americas, Africa, Middle East, and Asia was key, … Read more