What Are the CPG Companies Telling Us?
PepsiCo and Nestle again cut their 2024 organic sales guidance in 3Q after Constellation Brands reduced its guidance
I’ve written at length about some of the mixed economic signals in the U.S.: above-trend GDP growth, continued strength in services spending and record household net worth, yet at the same time rising and elevated auto and credit card delinquency rates, multiyear low bank loan growth (accompanied by numerous regional banks having reduced their 2024 loan growth guidance in the last three months), and a wide range of consumer-related companies cutting their 2024 sales/profit guidance and speaking cautiously/negatively about consumer health (and in some cases announcing major layoffs/restructuring programs).
Of course, the devil is in the details. The above-trend GDP growth has been at least partly the result of historically large government budget deficits; the deficit in fiscal 2024 was the largest on record aside from the 2020 and 2021 fiscal years (the pandemic effect). The record household net worth is concentrated among the top 1% and top 10%, with the latter holding 62% of assets compared to the bottom 50% with just 5.7%. And about half of consumer spending growth over the past two years has been on healthcare services, which are mandatory rather than discretionary. It’s no wonder, then, that many consumer companies are experiencing sales weakness: many of their customers (not among the top 10% of households) are limited in terms of how much they can spend, and cumulative 36% price increases over the past four years from the likes of PepsiCo have made many food, beverage, and other such products increasingly unaffordable.
What have been the latest developments along those lines? Just last week, Nestle, the world’s largest consumer packaged goods (CPG) company by sales, cut its 2024 organic sales guidance for the second time in two quarters, noting “a slowdown in the U.S., particularly in Pet and some of the concerns around the elections…” along with weakness in Latin America and Europe. Why the slowdown in its U.S. pet-care business? Per an article in The Wall Street Journal, pet owners are trading down to less expensive brands, including some that Nestle owns. Said Nestle’s CFO, “Short term, people are constrained on price. Retailers are wanting to promote more.” Said the company’s new CEO, “The perception of consumers everywhere but especially in the U.S. is that food prices are high,” adding that many consumers feel stretched after all the inflation they’ve experienced in recent years.
Below is an updated table of the aforementioned consumer company sales/profit guidance reductions in the last three months, with likely more to come in the days and weeks ahead. Below that is a table showing CPG companies’ (mostly North American) organic sales trends over the last five years; the trends are deteriorating, and thus far in 3Q, the (simple) average growth rate has turned slightly negative. If that remains the case, 3Q would mark the first quarter in many years in which CPG companies experienced an organic sales decline. In other words, for many Americans, this is far from a healthy economy.
