Key insights from Consumer Goods industry earnings reports – Week of July 24th
Week of July 24th is behind us and it was the most happening week with respect to consumer goods industry earnings reports. Lot of key industry participants provided their revenue and earnings for Q2’2017 and updated their full year guidance. Also during the earning calls after reporting, CEOs CFOs and CMOs answered questions from the analysts. These discussions provided deep insights into state of the industry and key strategic initiatives. Lets’ take a close look at what these insights were and what lies ahead for Consumer Goods industry.
Before we dive into individual company reports, here is what we witnessed as trends from consumer goods industry earnings reported in last week of July:
Key components of Consumer Goods industry earnings in week of July 24th
Coca Cola Company (KO)
Coca-Cola Company, the world’s largest beverage company, declared its Q2’17 financial results on July 26th. Quarterly revenues declined to $9.7 billion by 16 percent. 17 percent decline was attributed to the headwind from ongoing refranchising of bottling territories, and other 2 percent to currency exchange rates. Organic revenues of Coca-Cola Company increased year-over-year 3 percent, led by sparkling soft drinks. Unit case volume was flat, resulting from 1 percent growth in Mexico and Spain and 1 percent drag from Latin America Markets, specifically Brazil and Venezuela.
Company stated increase in market share across NARTD (non-alcoholic ready-to-drink) beverage segment. Gains were witnessed in sparkling soft drinks; juice, dairy, and plant-based beverages; and tea and coffee products. Company also focused on accelerated expansion of reduced-sugar offerings, with more innovation and growth being witnessed in low- and no- calorie soft drinks products.
Coca-Cola remains focused on expanding consumer centric portfolio, with more than 500 new products planned to be introduced this year. The company has made plan of numerous product launches. Some recently introduced products included new flavors of sparkling smartwater in Britain, expansion of Honest Tea in Western Europe and national rollout of Sprite Zero in China.
Looking ahead, Coca-Cola Company kept its full year guidance unchanged with 3 percent top line organic growth and 7-8 percent net income before taxes.
Key insights – Weakness in Brazil, accelerated focus on low-calorie beverages, targeting holistic growth through focusing on all product segments across markets
More details on Coca-Cola Company earnings – http://www.coca-colacompany.com
The largest franchise bottler in the world by sales volume, Coca-Cola announced its earnings on July 24th. Its quarterly revenues grew 25.5 percent over last year, while operating income grew by 8.1 percent. CEO John Santa Maria Otazua attributed this growth to deployment of our commercial, distribution, and supply-chain transformational initiatives. For the year ahead, the company’s focus is to expand portfolio and capitalize on transformational initiatives. For the detailed review of the earnings report and conference call transcript, follow the link: https://www.coca-colafemsa.com/
The 2nd largest toys manufacturer in the world by revenue, reported its Q2’2017 financial results on Jul 24th. Second quarter 2017 revenues grew 11 percent to $972.5 million contributed by revenue growth of 16 percent in the U.S. and Canada segment and 6 percent in the International segment. Entertainment and licensing segment revenues were reported to decline by 1 percent. Operating profit came out to be 10.3 percent of net revenues at $100 million, a growth of 18 percent. Net earnings increased 30 percent to $67.7 million.
Reason of double digit revenue and profit growth was attributed to story-led brands and innovative brand initiatives. 2nd half of the year is usually a strong growth period for toy manufacturers, leading up to the US holiday season. Hasbro’s CFO Debra Thomas said, “We are well positioned with innovative new product driven by strong entertainment as we enter the second half of the year”. CEO expects the year ahead to be strong.
Shares of Hasbro Inc. closed down 9.44 percent however, as the estimates fell short of street expectations. Overall shares of Hasbro were trading 30 percent up YTD, leading to higher expectations from analysts. The Hasbro’s revenue in last 5 years have been steadily rising.
Key comments from the earning conference:
- Hasbro considers its gaming portfolio (notably Monopoly and Magic: The Gathering) as a competitive differentiator and views it in its entirety
- Revenue growth attributed to Transformers, Magic: The Gathering, Nerf and Monopoly brands
- Marvel produced robust performance and both Marvel’s Guardians of the Galaxy Vol. 2 and Spider-Man: Homecoming contributed to growth and have good momentum entering the second half of the year
- Emerging Brands revenue declined 14 percent, specifically attributed to softness in Brazil and U.K. economies
Key insights – Weakness in Brazil and U.K markets, strength in US and emerging markets, focus on innovative brands
Want a more detailed insights into Hasbro’s earnings? Here is the link to their earning transcripts and reports: http://investor.hasbro.com.
Mattel Inc (MAT)
Mattel Inc, the largest toy manufacturer in the world by revenues, reported its 2017 2nd quarter financial performance on July 27th. Worldwide gross sales were up by 1 percent and net sales were up 2 percent. International sales were primary driver of growth, with its gross sales increasing 8 percent contrasting decline in North American markets by 2%.
Mattel Inc also reported net loss of $0.16 per share for the quarter, added to its losses in the 2017 from 1st quarter of $0.33 per share. Margin decreased 430 basis points, driven by higher royalty expenses, lower licensing income, unfavorable product mix and higher product costs.
Comparing the brands, sales for Mattel Girls and Boys brands were up 10%. The breakdown included 5% decline in Barbie sales, 28% decline in Other Girls brands, 6 percent decline in HotWheels, and 58 percent increase in Entertainment business (driven by Cars 3 products).
Mattel’s CEO Margo Georgiadis exhibited confidence in the year ahead by emphasizing strong performance of Mattel’s power brands – Barbie, Hot Wheels and Fisher-Price. CEO Margo also said that company is working on activating strategy outlined in June to future-proof Mattel in order to deliver enhanced sustainable growth. The key drivers of strategy per previous communication to investors were focus on emerging markets, faster pace of toy developments, and focus on digital play experience.
Mattel has been losing market share to other toy makers, exhibiting declining revenue trend in comparison to its prime competitor Hasbro. Below is the comparison chart of Hasbro’s annual revenues with industry leader Mattel:
Key insights – Strength in international markets, higher product costs, higher royalty expenses, focus on faster toy development cycle, digital play experience
3M reported its 2nd quarter financial performance on July 25th. Quarterly revenues of $7.8 billion were up by 1.9 percent year over year. Net profits were $1.6 billion, up by 22.6 percent. 3M also raised its full year revenue and earnings guidance.
Within our focus industry, consumer segment of 3M contributed $1.1 billion to the quarterly revenues. It was up by 0.5 percent, attributed to growth in home improvement, home care and consumer health care. Stationary and office products category saw decline in revenues. Regionally, APAC (Asia Pacific) and LATAM (Latin America) grew, while US and EMEA declined.
More detailed insights available at: http://investors.3M.com.
Key insights – Strength in emerging markets, consumer confidence
Kimberly Clark (KMB)
Kimberly Clark, a global leader in health, hygiene and well-being category announced its financial performance for Q2’2017 on July 25th. Quarterly revenues were reported at $4.6 billion, decreased by 1 percent. Organic sales declined by 2 percent in North American consumer products, evidencing category softness, lower promotion shipments and competitive activity. Other developed markets witnessed 3 percent decline while emerging markets sales rose by 2 percent.
Earnings per share for the quarter declined to $1.49 from 1.56 in 2016. Leadership mentioned lower sales and input cost inflation (pulp and other raw materials) to the lower earnings. Kimberly Clark did not change its full year guidance, however expressed that the full year performance would be towards low end of target range.
CEO Thomas J. Falk said “Our second quarter results reflect a challenging environment”. The CEO also mentioned achieving of cost savings of $120 million through company’s FORCE (Focused On Reducing Costs Everywhere) program.
A closer look at Kimberly Clark’s company’s business segments:
Personal Care segment sales were down 1 percent to $2.3 billion. Due to competitive activity North American sales were down by 1 percent. Other developed markets decreased by 7 percent, along with 3 percent decline in selling prices. Developing and emerging markets witnessed 3 percent increase for the category, however the net selling prices declined.
Consumer Tissue segment sales decreased 2 percent, and operating profits declined 12 percent due to cost inflation, manufacturing cost increases and reduced sales. Company also attributed the revenue decline to reduced marketing spending. Sales in North America declined 4 percent, and declined 6 percent for other developed markets. Developing and emerging markets sales increased 6 percent, 4 basis points attributed to favorable currency rates.
Professional segments saw slightly increased sales by $0.8 billion, with volume rising by 1 percent. North America revenues grew by 1 percent through growth in wipers and safety products. Other developed markets sales decreased 2 percent. Developing and emerging markets sales grew by 4 percent.
Key insights: Increased input cost inflation, weakness in developed markets, lower marketing spend.