Bank of Canada pins recovery on consumer
Prices may be rising, but Americans are still eagerly forking over their cash.
Whether they’re at the grocery store or dining out, shoppers are sending companies’ sales to new highs, the latest batch of earnings reports show.
Yum! Brands Inc., Altria Group Inc., Albertsons Cos., Hershey Co., Molson Coors Beverage Co., Tempur Sealy International Inc. and Keurig Dr Pepper Inc. all reported revenue that surpassed Wall Street expectations on Thursday morning, showing that the recent inflationary bout isn’t spooking consumers -- at least for now. Indeed, they’re proving willing to trade up to more premium products.
There’s also no sign that the steadily worsening virus situation is darkening consumer-products makers’ view of the horizon.
The recent quarter benefited from comparisons with the height of the COVID-19 pandemic last year, but companies largely reported results ahead of those from the before-times era of 2019, too. And they expect the good times to keep rolling, with several increasing their guidance for the rest of 2021.
“This quarter represents the best results we have had since implementing our revitalization plan nearly two years ago, and it delivered the most top-line growth of any quarter in over a decade,” Molson Coors Chief Executive Officer Gavin Hattersley said in a statement.
The beer giant said its second-quarter revenue rose 14 per cent on a constant-currency basis, citing both reopenings of bars and restaurants and higher sales of premium brands.
“Premiumization is here to stay” for Molson Coors, Hattersley said on a conference call. He said the company will seek to raise its products’ appeal based on quality, rather than price. It plans to invest in its line of hard seltzers and “aggressively” expand its portfolio of higher-end products.
Keurig Dr Pepper, meanwhile, “successfully navigated a challenging macro environment marked by inflation, supply-chain disruptions and a tight labor market,” CEO Bob Gamgort said in a statement, with sales up 9.6 per cent in the quarter. The drink maker raised its guidance for constant-currency net sales growth to a range of 6 per cent to 7 per cent, from the previous 4 per cent to 6 per cent.
Tempur Sealy, the mattress maker, said sales jumped 76 per cent in the quarter from last year and were up 62 per cent versus the 2019 period. The company raised its earnings-per-share guidance for the full year.
Consumer strength showed up in the just-released report on U.S. gross domestic product for the second quarter, with an annualized surge of 11.8 per cent in personal consumption countering other factors that held the overall GDP rise to 6.5 per cent.
The news wasn’t all rosy, as Keurig said the return of office workers continues to be slow, hurting its coffee-pods business.
And pricing power could be testing its limits, said Diana Rosero-Pena, an analyst at Bloomberg Intelligence. “My worry is consumers may be accepting of these first waves of price increases, but it may be hard to negotiate future ones in a relatively short period of time,” she said.
Companies for now remain bullish, however. Hershey has raised prices on its confection portfolio and now sees sales rising 6 per cent to 8 per cent for the full year -- up 2 percentage points from the previous range.
In an interview, Albertsons CEO Vivek Sankaran said consumers have shown no inkling of slowing down.
“Consumers have plenty of cash, but we’re seeing it in the behavior in our stores. They have not traded down,” Sankaran said. “They are buying things that are more discretionary. I’m still seeing consumers enjoying food at home. Orchids are not cheap -- we can’t keep them in stock.”