When it comes to economic and industry forecasts, we all have plenty of sources to consult, from the latest International Monetary Fund brief, to our neighbor's blog, to the trailing-12-month width of Larry Kudlow's pinstripes. Although not immune to error or exaggeration, I often prefer to heed CEOs' expectations. After all, they're the guys and gals in the trenches.
CAGNY, but no Lacey
Hey, I was as excited as the next guy to see Tyne Daly and Sharon Gless reunite onscreen in a recent "Burn Notice" episode, but the former pistol-wielding actors didn't offer much in the way of economic intelligence. A group of prominent CEOs gathered in sunny Florida, however, did.
Every year, the Consumer Analyst Group of New York (CAGNY) convenes in mid-February to talk shop. This is a group of analysts and companies that's skewed toward consumer staples and basic discretionary goods (think cereal, booze, and cigarettes), so I take their commentaries as a fairly reliable indicator of the consumer landscape.
This year, overt forecasts, as judged by presentations later made public, were in shorter supply than I would've preferred. Nonetheless, among the 20 or so attending companies, prevailing themes did emerge. Below, I summarize three such motifs.
1. Location still matters
Nowhere did the difference between domestic and international economies find sharper contrast than in the expectations of Big Tobacco names Philip Morris International
Altria, which hawks its cigarette, cigar, and smokeless-tobacco brands in the U.S., opened up by noting high unemployment and low consumer confidence. "Nearly 75% of adult consumers have a different set of priorities than several years ago," management observed, further citing that "nearly 60% of adult consumers" don't plan to spend as they once did. Those figures certainly don't surprise.
Conversely, global player Philip Morris International revealed a bullish outlook, going so far as to assert that "the stock market does not yet fully value the underlying strength of our business and its excellent momentum."
And the divergent forecasts show up in each company's numbers. Altria took the opportunity to revise its midterm EPS guidance, down from 8%-10% growth to 7%-9%. Philip Morris, on the other hand, held fast to its 2010 EPS growth estimate in the high teens, not to mention its long-term guidance of 10%-12% annual currency-neutral gains.
Finally, while Philip Morris's most recent dividend boost came in at 7.4%, Altria managed only a 2.9% increase.
With the exception of certain European markets -- Spain and Russia, for instance -- I expect that the international consumer will continue to show relative strength. So whether we're talking menthol cigs or running shoes, companies that boast a strong global footprint should outperform -- provided the dollar doesn't surge, that is.
2. Value's here to stay
Yep, companies continue to describe a choosy, better-informed, value-focused consumer. Packaged-foods producer ConAgra perhaps said it best: "We may be in an economic statistical recovery, but don't tell consumers that just yet. We believe value is here to stay even beyond the eventual recovery on Main Street."
Snacks-and-cereal maker Kellogg roughly seconded that notion, citing what it called "an absolutely critical data point" -- coupons. Having declined for 17 consecutive years, U.S. coupon usage jumped by 20% in 2009. If, embedded in that trend, is a widespread consumer insistence on promotional pricing, then companies could eventually find themselves forced to choose between volume growth and margin preservation.
Meanwhile, both Unilever
3. Strapped for cash? Eat this.
I've already described PepsiCo's shift toward healthier products. But the snacks-and-beverage giant isn't alone.
Campbell Soup talked up its health innovations, including a major renovation to its U.S. soup and broth portfolio. Lower sodium, added vegetables, and a low cholesterol profile are among the key features. Also, management highlighted its V8 line, where V8 Fusion sales have been on a tear.
Even deli-product and sweets specialist Sara Lee has joined the club, reducing salt content and, well, throwing its weight behind national anti-obesity initiatives. I expect that consumers will increasingly demand such products. In part, the shift is likely about health for health's sake, but I believe that it also has to do with consumers finding small ways to feel good about themselves amid tough economic times.
Companies that have a head start in this regard -- I'd count General Mills and Nestle among them -- deserve investor attention.
Wrapping it up
Ultimately, the market is increasingly becoming a stock picker's arena, where focusing purely on macro conditions may in fact lead investors astray. Take Latin American beverage company FEMSA
Do you like consumer stocks? Jim Royal thinks they're one of the safest investments around -- and they pay you back.
