http://consumeredgeresearch.com/index.php Company news en kmeyerhoff@consumeredgeresearch.com Copyright 2010 2010-03-01T20:44:32+00:00 http://consumeredgeresearch.com/news/consumeredge_research_announces_consumer_discretionary_team/ http://consumeredgeresearch.com/news/consumeredge_research_announces_consumer_discretionary_team/#When:20:44:32Z CONNECTICUT, Mar. 1 — Consumer Edge Research LLC, a preeminent investment research and consulting boutique, announced today that Faye Landes – 24year veteran analyst and product manager from the retail and consumer products industry — has joined the firm as Managing Director to head up the firm’s retail sector coverage. Consumer Edge Research LLC, founded in 2009 by former Morgan Stanley senior analyst Bill Pecoriello, has established a reputation for superior consumer sector research. Commenting on the hire, Mr. Pecoriello said, “I’ve known Faye for 10 years as both a former colleague and client, and have always been very impressed with the deep knowledge and experience she brings from the retail and consumer sectors. Faye brings a unique perspective having spent 8 years on the buy-side, 10 years on the sell-side and 6 years working in the consumer products industry. She has broad insights into both the key fundamental drivers of the retail and consumer sectors as well as an understanding of the key drivers of their share prices. She was a top ranked analyst in Institutional Investor for 6 years including 3 years at #1 in footwear and apparel, and in 1999 was ranked top ten across all categories for stock picking and industry knowledge. Her insights will be leveraged across our consumer staples industry coverage as well as our expansion into the consumer discretionary sectors. I am delighted that she is joining the firm and welcome her as a Managing Director.” Ms. Landes was formerly Director of Research and a Senior Analyst at Dawson-Herman Capital Management from 2008-2009. From 2007-2008, she was a Portfolio Strategist, responsible for the U.S. retail and consumer sectors at Moore Capital Management. Previously she was Retail Sector Head at Ziff Brothers Investments, which she joined in 2002. From 2000-2001 she was Senior Research Analyst e-commerce, footwear and apparel at Sanford C. Bernstein and Company. She was a Founding Partner at Thomas Weisel Partners from 1999-2000. From 1993-1999, she was a Managing Director covering footwear and apparel at Salomon Smith Barney. From 1992-1993, she was a research analyst covering footwear and apparel at PaineWebber. Ms. Landes previously she held positions as Product Manager at Slim-Fast Foods, CPC International and House of Seagram. Ms. Landes was educated at New York Stern School of Business where she received an M.B.A and at Princeton University. Stated Ms. Landes, “I am thrilled to be joining the firm. I am excited to work with Bill and his team, whose work I valued highly when I was a client, to build out research coverage into consumer discretionary categories.” She added, “I am confident that my understanding of near and longer term trends in consumer behavior, as well as my experience covering retailers on both the sell and buyside will allow me to further differentiate Consumer Research Edge product with clients.” About Consumer Edge Research Consumer Edge Research LLC is a preeminent independent equity research and consulting boutique focused on the global consumer sector, including consumer staples as well as consumer discretionary. We generate non-consensus ideas combining uniquely thorough, fact-based, primary research with rigorous valuation analysis and perspective from years of covering our sectors. Our team has over 100 years of combined experience in the consumer and financial services industries. Our work is supported by extensive industry relationships developed over two decades. Our data are gathered both from global syndicated sources as well as primary research surveys, channel checks and other proprietary data collection. We offer a high level of service and responsiveness by keeping a focused client list. 2010-03-01T20:44:32+00:00 http://consumeredgeresearch.com/news/consumer_analyst_leaves_behind_wall_st_turf_issues/ http://consumeredgeresearch.com/news/consumer_analyst_leaves_behind_wall_st_turf_issues/#When:13:19:57Z Thomson Reuters Star consumer goods analyst enjoys freedom in own firm Doing broader reports than he could at a bank Sees tough year, pricing pressure on suppliers in 2010 Top 2010 picks include Avon, Dr Pepper, Coke Enterprises By Martinne Geller and Jessica Wohl BOCA RATON, Fla., Feb 18 (Reuters) - When star consumer goods analyst Bill Pecoriello left Morgan Stanley to start a boutique research firm, the stock market was just coming out of the doldrums and banks were trimming their ranks. Nearly a year later, he is thrilled he left the turf wars within large firms to dive deeper into research that banks were not doing. Pecoriello, chief executive of Consumer Edge Research which he started in April 2009, said his team can write more freely about prospects for the companies they cover and that all of the firm’s 10 employees collaborate. “There’s no turf differences between our beverage guy and our food guy. We are working together on every report,” he said in an interview this week. In addition, there is no overarching management that has a say in what the firm should write about. “I love it, because I’ve always wanted to be an entrepreneur,” he added. While on Wall Street, Pecoriello was named the top beverage analyst by Institutional Investor from 2003 to 2008 and a runner-up in the household/personal care and tobacco sectors. In 2008, he was also StarMine’s No. 1 stock picker in the beverage sector and No. 2 in the household goods sector. Consumer Edge tracks the food, beverage, tobacco and household and personal care products sectors, and plans to cover international companies and more discretionary sectors, including retailers, down the road. For now, Pecoriello expects the consumer environment to remain very tough in the United States and Western Europe, with stronger growth in emerging markets. “We expect little pricing power and retailer pressure on the suppliers” this year, he said. Pecoriello’s top stock picks for 2010 include Coca-Cola Enterprises Inc, Dr Pepper Snapple Group Inc and Avon Products Inc. He also has “outperform” ratings on PepsiCo, Kraft Foods Inc, Hansen Natural Corp and Clorox Co. No Change In Access Consumer Edge’s strategy may sound familiar to those who follow technology or other sectors—mixing equity and market research with reams of data and consulting, for a wider approach than a sell-side analyst could provide on his own. It follows a model created by earlier start-ups such as Gartner Group or Telsey Advisory Group, also founded by Wall Street veterans. Pecoriello’s exit from the sell-side after 12 years was a rare occurrence among consumer products analysts. After working at strategy consulting firm Mars & Co, he was an analyst at Sanford Bernstein from 1996 until 2001 and then at Morgan Stanley from 2001 through late 2008. Pecoriello said his connections to the companies he follows has not changed now that he is on his own. “We’re hosting events with the companies. The companies are reading our research .... There’s no change in the access,” he said, citing meetings with executives from Coca-Cola Co, Colgate Palmolive Co and Estee Lauder Cos Inc. Pecoriello said he is still asked “on a regular basis” to speak—without pay—to company sales teams, boards of directors or executive management, “to give my perspective on the industry and the competitive environment.” While Pecoriello’s distribution list has shrunk from more than 1,000 investors to a “much more focused client list,” he is able to take a broader look at company strategies. A recent report suggested how Coke could respond globally to PepsiCo Inc’s purchase of its two biggest bottlers. Consumer Edge proposed that Coca-Cola Femsa could buy U.S. assets from top Coke bottler Coca-Cola Enterprises, in turn giving Coke Enterprises cash to go out and acquire some European bottling operations now owned by Coke.“We’re able to totally write what we want about it. We don’t have any restrictions,” he said. At large Wall Street firms, analysts on different sides of the world often take care not to step on each others’ toes, he said. Consumer Edge also conducts a monthly consumer survey of more than 2,600 U.S. households. (Reporting by Martinne Geller and Jessica Wohl; Editing by Richard Chang)   2010-02-19T13:19:57+00:00 http://consumeredgeresearch.com/news/pg_to_unveil_flurry_of_products/ http://consumeredgeresearch.com/news/pg_to_unveil_flurry_of_products/#When:13:19:30Z Profit Outlook Curbed; CEO McDonald Says Growth Strategies ‘Starting to Work’ By ELLEN BYRON And ANJALI CORDEIRO BOCA RATON, Fla.—Procter & Gamble Co. said it expects stronger sales in coming months as it launches a flurry of new products—from India to Brazil to the U.S.—but it acknowledged its profits won’t grow as quickly over the long term as previously thought. The world’s biggest consumer-products maker is betting on innovation to lure recession-weary shoppers with a wider range of prices and new features. The emphasis on its new products comes as P&G tries to reassure investors that it can once again post sizable gains in sales despite a big deceleration during the recession. “We have much work left to do but we’re encouraged by early signs that our growth strategies are starting to work,” P&G Chief Executive Robert McDonald told investors at a conference Thursday. Many investors have fretted that P&G may have lost the ability to cater to cost-conscious shoppers. Some analysts had feared P&G would have to lower its long-term sales-growth targets to contend with weakened consumer spending. As it happened, P&G executives didn’t reiterate their long-term target for sales growth, and they lowered their long-term forecast for growth in earnings per share. The company now expects per-share earnings to grow in a range of “high single to low double digits”; P&G’s previous long-term target, maintained since 2001, has been double-digit gains. “We think this lack of detail adds some ambiguity and is somewhat frustrating,” J.P. Morgan analyst John Faucher wrote in a research report, noting P&G’s size and increased competitive activity will challenge its ability to increase sales at the high end of its long-term target. Executives gave no indication of additional price cuts to those announced last month, but cautioned that they may choose to “prioritize” revenue growth over profit margins for now. Still, Mr. McDonald expressed confidence in P&G’s ability to increase its organic sales, a closely watched metric that excludes acquisitions, divestitures and currency effects. The company announced that “organic sales growth has returned,” and expects increases through the remainder of its fiscal year ending June 30. “We are going to grow, and we are going to be [at] the top of our peer group,” Mr. McDonald said. The chief executive touted the pipeline of newproducts P&G will roll out over the coming months, saying there will be 30% more launches in the company’s main product categories and key countries than in the year before, and the most in his 30-year career at the company. Hair-care brand Pantene plans a “reinvention,” Mr. McDonald said, including new formulations, packaging and marketing that will launch in June. Oral-care introductions include new Crest whitening products and a new Crest Pro-Health Sensitive line of toothbrushes, floss and toothpaste. Other new products will help expand P&G’s range of prices. The company will sell a new premium detergent in Japan called Sarasa, a bargain-priced detergent called Tide Naturals in India and a midprice line of Ace detergent in Colombia. This week, other major consumer-product makers boasted of upcoming new and improved products. Colgate-Palmolive Inc. and Clorox Co. on Thursday touted new toothpastes. On Wednesday, Church & Dwight Co. said it was in the midst of one of the most robust new-product rollouts in its history, including new Arm & Hammer detergents, OxiClean stain fighters and Nair hair remover. Still, these launches come with expectations of a difficult year ahead. “2010 is going to be uglier than hell,” Church & Dwight Co. CEO Jim Craigie said on Wednesday. “I don’t see the economy coming back at all.“Though consumer-product makers long have succeeded in persuading shoppers to spend more by introducing new, enhanced goods, this time may be different, some analysts warn. Despite some signs of improving consumer sentiment, “consumers are clearly indicating that they are nonetheless still in a very frugal mindset, looking to reduce debt, save more, and continuing to manage their budget extremely cautiously,” according to a January report by research firm Consumer Edge Research LLC. 2010-02-19T13:19:30+00:00 http://consumeredgeresearch.com/news/new_york_soda_tax_proposal_pours_a_big_glass_of_controversy/ http://consumeredgeresearch.com/news/new_york_soda_tax_proposal_pours_a_big_glass_of_controversy/#When:11:48:14Z By Jeremiah McWilliams The Atlanta Journal-Constitution At first glance, it doesn’t sound like much: A tax of one cent per ounce on sodas in New York. But the line item in New York Governor David Paterson’s budget reverberates from Albany, N.Y., to Washington, D.C., and down to Atlanta. Ripples could be felt across the country. Paterson wants to slap a new tax on sodas to raise $1 billion per year and help plug an $8 billion budget deficit. In addition, backers say, the levy would help reduce obesity. Even with relatively low chance of passing, the tax has the beverage industry girding for a showdown. The Washington-based American Beverage Association, which represents Coca-Cola, PepsiCo and Dr Pepper Snapple Group, called the tax a “money grab, pure and simple.” Bottling plant employees have protested in front of TV cameras. Beverage companies have used stern language warning legislators of lost jobs and squeezed grocery budgets. Yet that does little to relieve New York’s budget problem. Insiders say the proposal has made more headway than a proposed 18-percent retail surcharge that was killed last year in New York. “We’re facing extraordinary fiscal difficulties,” said Matt Anderson, New York’s Division of the Budget spokesman. “At a time when we’re facing a historic fiscal crisis as well as a health crisis, we think this is a proposal that should garner support. It’s going to be hard to walk away from this kind of smart public policy.” Paterson’s budget estimates the tax would raise $450 million for health care programs in 2010 and $1 billion in subsequent years. States have a cumulative budget shortfall of $350 billion, the worst since the Great Depression, said Sujit CanagaRetna, senior fiscal analyst at The Council of State Governments. Every state except Vermont is constitutionally required to balance its budget. As tax revenues have fallen, states face intense pressure to find new sources of cash. “You really have no way out,” said CanagaRetna. “You’ve got to come up with the money.” The soda industry worries, and anti-soda groups hope, a New York tax could encourage other states to follow suit. Proposals to tax sodas more heavily have been floated in Massachusetts and Mississippi. “Just talking about a steep soft drink tax could embolden other states or cities to levy a tax,” said Michael Jacobson, Center for Science in the Public Interest executive. New York is a high-profile market. It accounts for about 4 percent of sales of full-calorie sodas in the U.S. With soda sales already shrinking in North America, beverage companies squawk at taxes that could reduce volume and profits even in a single state. Bill Pecoriello of Consumer Edge Research estimated the tax could reduce drinks sales by 5 to 6 percent, while Jacobson estimated the drop could be as much as 10 percent. The beverage industry argues that a tax on sugary soft drinks would hit lower-income people disproportionately harder than wealthy consumers. If levied at the cash register, the tax could increase the price of a 12-pack in New York by $1.44 and that of a two-liter bottle by 67 cents, according to Beverage Digest. “We, as a company and as an industry, are really committed to making sure that lawmakers and regulators understand just how unwise that approach is,” said John Brock, chief executive of bottler Coca-Cola Enterprises. “We don’t spend a lot of time thinking about what if, because we’re confident that sane minds will prevail and it won’t be put into place.” Soda companies aren’t relaxing completely. Support for a sugared soft drink tax is increasing nationally and in New York, according to a recent survey of 2,600 people by Consumer Edge Research. Support is noticeably higher in New York than in the U.S. at large, according to the research firm. In January, nearly 36 percent of New York state residents supported a tax, compared to 27.3 percent across the country. Fewer residents of the Empire State were strongly or somewhat opposed to the tax, 44 percent for New York compared to 49 percent nationally. It’s still unlikely the New York tax will be passed into law, said John Sicher, Beverage Digest editor and publisher. “[But]the industry needs to be very vigilant and take this very seriously. Governments are desperate for money.” 2010-02-12T11:48:14+00:00 http://consumeredgeresearch.com/news/walmart_food-bag_consolidation_wipes_glad_hefty_from_shelves/ http://consumeredgeresearch.com/news/walmart_food-bag_consolidation_wipes_glad_hefty_from_shelves/#When:20:58:57Z Despite Amplified Ad Spending by Brands Last Year, Ziploc Emerges Clear Winner in Shootout By Jack Neff Published: February 04, 2010       BATAVIA, Ohio (AdAge.com)—In the latest of a growing wave of brand consolidations, Walmart has sent Glad and Hefty bags packing from its food-storage shelves. Similar decisions are likely to play out across other categories over the course of the year, as Walmart steps up efforts to streamline brand assortments, often to the benefit of its fast-expanding Great Value brand and national brands that survive the vetting. Hefty parent Pactiv Corp. confirmed that Walmart has removed the brand’s food bags off its shelves. The move follows a shootout in a series of store tests starting late last year, which appear to have prompted the Glad, Hefty and Ziploc brands to hike ad spending dramatically, despite a deep recession and flat to falling category sales, in efforts to stave off de-listings. The contests had high stakes for the brands, given that Walmart makes up a third or more of their sales. Walgreens and CVS, too, have significantly pared their trash and food bag brand lineups in recent months. In food bags, Walmart has consolidated nationally with one brand, SC Johnson’s Ziploc, and its own private label, Great Value, wiping Glad and Pactiv Corp.‘s Hefty off its shelves, according to a person familiar with the matter. (Pactiv confirmed the move for its brand, while spokespeople for Walmart, Clorox and SCJ declined to comment.) In trash bags, Glad and Hefty have retained their places on the shelves, two people familiar with the matter say, but Hefty now has a smaller assortment limited to its CinchSak line. This position was most likely preserved, says Consumer Edge Research analyst Bill Pecoriello, by Pactiv Corp.‘s agreement to take over all private-label manufacturing for Walmart’s Great Value trash and food bags. The clearest winner in the Walmart bag war—besides the retailer’s own Great Value—appears to be SC Johnson’s Ziploc, with mixed results for Glad, owned 80% by Clorox Co. and 20% by Procter & Gamble Co., and Pactiv Corp.‘s Hefty. Mixed bag Pactiv, which has taken over all private-label manufacturing for Great Value from smaller, non-branded producers, also stands to pick up volume, but as margins on private-label manufacturing tend to be considerably smaller, it’s less clear what the net impact on profits will be. For the 52 weeks ended Dec. 27, the bag categories collectively accounted for $1.9 billion in sales as measured by Information Resources Inc. data, which exclude Walmart, and likely account for more than $1 billion in additional sales at Walmart and $4 billion total across all channels, including club and dollar stores. Even before this, the categories already had some of the largest private-label penetration rates in package goods, with more than a third of dollar sales and more than half of volume in the combined categories coming from store brands in measured channels. So Walmart and other big retailers such as Walgreens and CVS have probably been more aggressive at culling national brands there than they will be in some other categories, though the moves are still indicative of a broader trend, said Mr. Pecoriello. “If you look at the trash-bag category, you really have to ask yourself, ‘Is there really a need to have more than one brand and private label?’” he said. “I think Walmart is going to make similar moves in some of the cleaning areas and then across the portfolio.” Faced with the threat of mass de-listings, the bag brands collectively hiked ad spending last year to $112.4 million through November, according to Kantar Media, up 78% from the year-ago period and 63% from full-year 2008. Hefty had the biggest increase, hiking spending more than sevenfold to $23 million. Glad increased spending 58% to $57.9 million and Ziploc 37% to $31.5 million through November compared to the year-ago period. Hefty win? Picking up the private-label manufacturing –- often viewed as a concession by brand marketers—was portrayed as a prize by Hefty executives, who addressed the trash-bag portion of the business only on a Jan. 27 conference call. Analysts, though, raised questions about the margin impact and potential for industry pricing disruption as private-label manufacturers seek new outlets for their sudden excess capacity. Clorox exited the private-label bag manufacturing business last year after deeming it non-strategic. A spokeswoman for Pactiv confirmed it has also taken over manufacturing for Great Value food bags and added, “We are currently off the shelf on the food-bag business, but we expect to be back on the shelf in that category sometime in the future.” Indeed, Walmart’s assortment decisions aren’t always permanent and are reviewed sometimes more than annually. In some lower-priority categories such as food and trash bags, Walmart is moving closer to practices of club and dollar stores, which often carry only one national brand –- sometimes on a rotating basis -– plus private label. That gives ousted brands a chance to win their space back while ratcheting up pressure for price and sales performance on all brands year-round. It’s less clear how a third, related segment –- disposable food-storage containers –- will be handled. But in Cincinnati area Walmart stores, only Ziploc disposable containers were to be found and only in endcap space, with Gladware and other disposable food containers removed entirely from the main food-storage display. 2010-02-04T20:58:57+00:00 http://consumeredgeresearch.com/news/bulk_of_us_holiday_buying_may_have_already_occurred_-_wsj/ http://consumeredgeresearch.com/news/bulk_of_us_holiday_buying_may_have_already_occurred_-_wsj/#When:11:46:25Z By Karen Talley   Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)—The burst of Christmas buying may already be over, according to new research findings, casting doubts on whether retailers will be able to have a better holiday season than last year. Consumers with larger incomes have already finished much of their shopping, while those with less money are still holding back to a large degree, based on research released this week. The developments suggest that holiday spending could slope down from here as more people go to stores but spend less. “People with more money and who are more secure about their jobs took advantage of early deals,” said Bill Pecoriello, chief executive of Consumer Edge Research. “Those who are unemployed or underemployed are waiting in hopes of even better prices.” Consumer Edge found that the amount of money shoppers plan to spend on gifts this year dropped to $402 as of the end of November from $440 the month before. Just over 10% of adults expect to spend more this year than last year, compared with 14% the prior month, Consumer Edge said. Pecoriello attributes the scalebacks to a higher proportion of lower-income shoppers starting the bulk of their buying and consumers with bigger incomes being further along or even done with their purchasing. The households that are starting to shop are likely those with less than $40,000 in annual income, Pecoriello said. This group plans to spend $215 this year and represents the largest slice of consumers in the U.S., at 44% of households, Consumer Edge said. Households with $80,000 to $150,000 expect to spend $614, while those with incomes above $150,000 plan to spend $1,060, the firm said. The National Retail Federation said Wednesday that about half of consumers have finished their holiday shopping and the majority of those still planning to spend will do so in discount stores and department stores. Online, which is also a low-price venue, is the next top destination. Electronics stores, which reported brisk sales over the Black Friday weekend, will see less than one-quarter of those who still have shopping to do, the National Retail Federation said. Mike Duke, chairman of discounter Wal-Mart Stores Inc. (WMT), has said that he expects the store’s customers to shop late in the season. The National Retail Federation expects holiday sales to fall 1% to $437 billion this year compared with 2008, as 84% of consumers plan to spend less this season. -By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com 2009-12-18T11:46:25+00:00 http://consumeredgeresearch.com/news/at_pepsi_the_glass_is_half_full/ http://consumeredgeresearch.com/news/at_pepsi_the_glass_is_half_full/#When:12:34:53Z by Jin Lee/Bloomberg News Investors have turned their backs this year on consumer-staples stocks, while chasing after companies that promise faster growth. In PepsiCo’s case, they’ve had added reason to look elsewhere, given declining revenue and profits in the company’s North American beverage division—home of Pepsi products, Gatorade sports drinks, Tropicana juices, Aquafina water and other familiar brands. Under CEO Indra Nooyi, PepsiCo has made small acquisitions around the globe. Buying key bottlers is Nooyi’s first swing at dramatically changing the business. Pepsi has suffered as cash-strapped consumers have traded down to private-label products—or quenched their thirst at the kitchen sink. Writing off Pepsi would be a mistake, however, given its powerful snack-food franchise and the cost savings the company could realize from the planned $7.8 billion acquisition of two of its key bottlers. Besides, its shares, now around 63, look cheap. As the economy starts to recover, Purchase, N.Y.-based Pepsi could regain its fizz. Pepsi earned $5.9 million, or $3.68 a share, last year, on revenue of $43.3 billion. This year, the company is expected to earn $3.76 a share, and next year, with the bottlers included, it could net $4.22. That’s consistent with CEO Indra Nooyi’s recent statement that Pepsi is targeting 11% to 13% growth next year in earnings per share, excluding the impact of currency translation, and assuming the bottling deals close on schedule, early in 2010. Some fans of the stock expect Pepsi to enjoy robust growth for at least several years. “We see a path for double-digit earnings growth over the next three years,” says Bill Pecoriello, CEO of ConsumerEdge Research, who has an Outperform rating and a 12-month price target of 72 on Pepsi’s shares. Mario Gabelli, chairman and CEO of Gamco Investors, which manages mutual funds, is even more optimistic, noting that in the next few years, “the stock [could] trade 50% to 60% higher, which, with the dividend, gives you a pretty good return.” Gabelli, whose funds own Pepsi shares, bases his analysis on what he thinks the company’s parts could be worth in private-market transactions. Pepsi pays a dividend of $1.80 a share, and yields 2.8%. Pepsi trades for 15 times next year’s consensus estimate, near the bottom of its 10-year range of 13.1 to 31.6 times expected earnings. It also trades at a discount to arch-rival Coca-Cola (KO), which sports a price/earnings multiple of 17, and consumer-products giants such as Colgate-Palmolive (CL) and Procter & Gamble (PG), which trade, respectively, for 17.3 and 15.6 times 2010 forecasts. If Pepsi’s profit grows by double digits this year and next, the company could earn as much as $5 a share in 2012, says Ian Jamieson, a portfolio manager at BlackRock, which owns the stock. As the market anticipates that profit growth, the shares could climb to 85, he says, assuming Pepsi’s P/E expands to reflect the strength of its business. Pepsi Divides its business along geographic lines, into PepsiCo Americas Beverages, Frito-Lay North America, U.K./Europe, Latin America Foods, Middle East/Africa/Asia and Quaker Foods North America. On a product basis, beverages contribute roughly 37% of revenue and 40% of operating earnings, while snack foods account for 63% of sales and 60% of profits. The company’s snack portfolio is a chip-lover’s dream, and includes brands such as Doritos, Ruffles, Lay’s, Fritos and Cheetos, as well as Rold Gold pretzels. Even in a challenging economy, snacks have done well, both in the U.S. and abroad. Pepsi officials have noted that more people are eating at home these days than in the past, which has hurt beverage sales but helped the snack-food business. Revenue in the PepsiCo Americas Beverages division fell 10% in the first nine months of this year, to $7.4 billion, while operating profit declined 11%, to $1.7 billion. The company doesn’t break out the performance of individual brands, but industry data indicate that results for Pepsi, Gatorade and water disappointed. In contrast, at both Frito-Lay North America and Pepsi’s international snack and beverage unit, operating profit has increased by 7% so far this year. And that’s despite headwinds from unfavorable currency translation, which could abate in the current quarter, as the dollar shows signs of firming. “In every snack country we’re in, we are either No. 1 or No. 2,” says Chief Financial Officer Richard Goodman. “There is no real global competitor.” That gives Pepsi the ability to price its products slightly above local brands, thereby boosting profit margins. The North American snack-foods business, for instance, boasts operating margins of 25%. In its beverage business, Pepsi long has played No. 2 to Atlanta-based Coke. The gap between the two cola titans globally has narrowed slightly in recent years, but Coke has a far larger footprint overseas. It generates about 75% of sales and 80% of profits from outside North America, compared with Pepsi’s roughly 40% of sales and 34% of profits. Pepsi manufactures and distributes its snack products globally. “We think of it as a huge competitive advantage because we control everything that happens,” says CFO Goodman. The same desire for greater control lies behind CEO Nooyi’s plan, announced earlier this year, to buy and consolidate Pepsi’s two largest bottlers, Pepsi Bottling Group (PBG), based in nearby Somers, N.Y., and PepsiAmericas (PAS), headquartered in Minneapolis. After snapping up the 68% of Pepsi Bottling and the 57% of PepsiAmericas it doesn’t already own, PepsiCo will control marketing, manufacturing and distribution of its beverages in 80% of North America. Many industry watchers expect it to buy the remaining independent U.S. bottlers over time. Wall Street generally considers food-and-beverage sales relatively recession-resistant, but that hasn’t been the case in the past two years. Volume sales of liquid-refreshment beverages fell 2.2% in the U.S. in 2008, and are down roughly 2% so far this year, according to John Sicher, editor and publisher of Beverage Digest. That follows increases of 1.9% to 4.7% in the three prior years. Sales of carbonated soft drinks fell by 3.2% industrywide last year, following three years of slightly smaller declines. Sales of sports drinks and bottled water fell last year for the first time ever, after logging double-digit gains earlier in the decade. The problems at PepsiCo Americas Beverages can’t be ignored, since the division accounts for 26% of Pepsi’s operating profit, a contribution that could jump to 35% after the bottling-company purchases close, estimates ConsumerEdge’s Pecoriello. Volume sales in the domestic beverage business could grow by 1% to 2% a year as the economy recovers, and the company could enjoy price increases on top of that, says Pepsi’s Goodman. That should produce modest revenue growth. To turn that growth into profit gains, “you have to take out all overlapping functions,” Goodman says. “You want to be absolutely as lean as you can.” In PepsiCo’s case, that likely will mean cutting $300 million of costs as the company realizes synergies from the bottler mergers, which could translate into an additional 15 cents a share of earnings. The consolidated company could see a one-percentage-point pickup in its earnings growth rate. Some analysts expect the savings will be even greater. Pepsi Bottling Group initially rejected PepsiCo’s offer to buy its outstanding shares at $29.50 apiece, stating in its rejection letter that it believed the merger savings would be “multiples” of the $200 million that PepsiCo originally said it could achieve. PepsiCo was able to complete the deal at a sweetened $36.50 a share. The savings will come primarily from eliminating redundancies associated with running three publicly traded companies. The deal also could enable Pepsi to make faster decisions, enhance the development of new products and increase its leverage in negotiating with big retailers. “Calling on a national account with one face and one voice is very important,” says a person familiar with the deal. Nooyi, 54, became Pepsi’s CEO three years ago, after a lengthy career at the company, including stints as president and CFO. While Pepsi has made “tuck-in” acquisitions of small brands around the world during her tenure as CEO, the bottling deal is her first swing at dramatically changing the business. Her recent decision to hire Eric Foss, CEO of Pepsi Bottling Group, to head PepsiCo’s new North American Bottling Group, was widely praised, as he is likely to facilitate a smooth integration of the bottlers. The Pepsi Bottling Group was originally owned by PepsiCo, and was spun off as an independent entity in 1999. At the time, carbonated soft drinks accounted for 60% of Pepsi’s beverage sales, and the bottlers were viewed as lower-growth businesses that required significant capital investments. Liberating them freed Pepsi to invest in other businesses and diversify its product portfolio. Today, carbonated soft drinks represent only 45% of the Pepsi’s beverage sales. When Pepsi bought Quaker Oats in 2001, it acquired the Gatorade sports-drink brand. For several years, volume sales grew by double digits, but in recent years Gatorade has suffered declining volume. This year, Pepsi has undertaken a major makeover of the brand, which accounts for roughly 8% of total revenue. Gatorade is expected to introduce several new products next year, says Sicher, of Beverage Digest. The company is planning to launch a pre-exercise drink called Prime, and a post-workout beverage, Recover, to complement its current Perform line-up of sports beverages. “We’re planning to introduce a significant innovation that will evolve Gatorade, and in some ways the [sports-drink] category,” said a Pepsi spokesman, who declined to elaborate. To be sure, the bull case for Pepsi could go flat if the beverage business continues to deteriorate, or if a push to tax soda and other sugary drinks gains traction. Some proponents of such a tax view it as a way to curb obesity in the U.S., while others see it as a way to help pay for health-care reform. “It’s a risk, but not enough of a probability to make it into our base case” for the stock, says Pecoriello. As Pecoriello and other Pepsi fans see it, the company has many levers it can use to boost revenue and meet its earnings goals. Even if just a few of them work, PepsiCo’s shares soon could be bubbling higher. 2009-11-28T12:34:53+00:00 http://consumeredgeresearch.com/news/rich_to_shop_early_may_skew_black_friday_sales/ http://consumeredgeresearch.com/news/rich_to_shop_early_may_skew_black_friday_sales/#When:15:00:26Z NEW YORK (Reuters) - Wealthier Americans are expected to jump right into holiday shopping this week, but unemployed U.S. consumers will sit out the early part of the season, suggesting solid Black Friday results could be deceiving, according to a survey released on Monday. The highest income households, or those earning $150,000 or more, plan to get an early start on their shopping, according to the survey by Consumer Edge Research. Lower income shoppers and those who have lost their jobs, or fear getting laid off, will wait to see what bargains pop up as Christmas approaches, the survey found. “As we get further on into December and toward the year end, you’re going be left with low income households that are holding out, and they’ve indicated they’re going to spend a lot less than a year ago,” Consumer Edge Chief Executive Bill Pecoriello told Reuters in an interview. For every consumer planning to increase how much money he or she will spend during the holiday, there are two and half saying they plan to curb their spending. Consumer Edge Research surveyed 2,644 adults between October 15 and October 27, with a margin of error of 2 percent. Household indebtedness will also continue to weigh on any comeback in the retail sector, Pecoriello said. Of the survey respondents saying they will cut back on holiday spending, a disproportionate number have high credit card debts, he said. On average, consumers surveyed by Consumer Edge that carried balances from the previous month had a credit card balance of $6,791. So while the affluent and the employed may rush into U.S. malls this weekend, a bumper start to the holidays on Black Friday does not mean it will be the season to be jolly for retailers. “Even if we get positive data when sales come in for Black Friday, you wouldn’t necessarily extrapolate that out—things could get tough,” Pecoriello added. (Reporting by Phil Wahba; editing by Andre Grenon 2009-11-24T15:00:26+00:00 http://consumeredgeresearch.com/news/bottled-water_price_war_heats_up_as_demand_falls_-_wsj/ http://consumeredgeresearch.com/news/bottled-water_price_war_heats_up_as_demand_falls_-_wsj/#When:13:38:45Z Bottled-water makers have stepped up a months-long price war this summer to win back customers who have turned on the tap to save money and reduce environmental waste. This month, PepsiCo Inc.‘s Aquafina brand sold at some grocery stores for as little as $2.99 for a 24-pack of half-liter bottles—less than a penny an ounce and about half of its typical price. Still, that wasn’t as cheap as the private-label brand at supermarket chain Kroger Co., on sale for $2.49. “It used to be $6.99 for a 24-pack, then $5.99,” said Michael Bellas, chief executive of New York consulting firm Beverage Marketing Corp. “But $2.49? That’s the lowest I’ve seen.” In the first quarter of 2009, bottled-water brands sold for an average of $1.35 a gallon in the U.S., down more than 30% from $1.94 in 2001, according to the consulting firm. It isn’t clear whether beverage and bottling companies make any money on bottled water at these prices, beverage analysts say. In recent years, water has given the companies a huge lift in their overall volumes sold, an indicator watched closely by Wall Street. But the beverage makers haven’t seen a big jump in earnings, in part because of their sizable investment in the water business, said Bill Pecoriello, CEO of ConsumerEdge Research LLC. The price wars aggravate a continuing problem, Mr. Pecoriello said. The bottling companies rely on single-serve bottles sold in vending machines and coolers for much of their profit margin on bottled water, but with those sales down, they are also struggling to make water profitable, he said. Some analysts predict the price of bottled water could fall even further by next summer, as PepsiCo absorbs its two biggest bottlers and makes expected changes to lower its delivery costs. Pepsi declined to comment on its plans. Bottled-water makers caution that the low prices are promotional and average normal retail prices for their 24-packs haven’t fallen as drastically. Bargains before holidays like Labor Day are common, they say. The price slashing comes as bottled-water sales are declining after more than a decade of blockbuster growth. For the year ended July 12, U.S. sales of bottled water dropped 6% to $7.6 billion, according to Chicago-based market-research firm Information Resources Inc., whose figures don’t include sales from Wal-Mart Stores Inc. Sales of bottled water have suffered as environmentalists urged boycotts of the product. In 2007, environmental groups intensified campaigns to persuade consumers to reject bottled water as wasteful. Several city governments and restaurants stopped stocking it. Coca-Cola Co., Pepsi and Nestlé Waters North America Inc., a unit of Swiss food giant Nestlé SA and America’s biggest bottled-water maker, have been reducing the amount of plastic in their bottles in response to public criticism. Pepsi’s “Eco-Fina” half-liter bottle contains less than half the plastic of its 2002 half-liter bottle. Coke has promised to begin using a bottle made partly of plant-based materials late this year. Falling prices for plastic bottles have helped offset the price cuts by the beverage companies and other bottled-water suppliers, including Niagara Bottling LLC, which produces private-label brands. Coke and its bottlers are reluctant to slash prices for Dasani, but have sometimes done so for the Aquarius Spring water brand. Coke’s refusal to lower Dasani prices has come at a cost: The brand’s U.S. sales volume slid nearly 26% in grocery and other stores, excluding Wal-Mart, in the 12 weeks ended Aug. 8, according to a report by J.P. Morgan Chase & Co., which cited data from Nielsen Syndicate Market Data. Aquafina’s sales fell a less-steep 13.8% over the same period, helped by a 5% price cut. Sales of Poland Spring, owned by Nestlé, fell 8.9% while its prices sank 11.3%. Brandon Leck, director of Coca-Cola North America’s water brands, said the company expects bottled-water sales to improve with the economy. “As the economy recovers, we’re confident that consumers’ demand for value, convenience, and purity will prevail,” said Pepsi spokesman Bart Casabona. Timothy F. Brown, head of retail operations for Nestlé, said his company remains bullish on bottled water. While Nestlé has been involved in cutting prices, he said much of the discount pricing was set by retailers eager to drive traffic to their stores. 2009-08-31T13:38:45+00:00 http://consumeredgeresearch.com/news/household_chores_for_pgs_incoming_ceo/ http://consumeredgeresearch.com/news/household_chores_for_pgs_incoming_ceo/#When:21:08:15Z Robert McDonald arrives just as the consumer products giant faces a price gap with rivals and a need to regain turf with lower-end brands By Roger O. Crockett Business Week – August 5, 2009 Procter & Gamble’s (PG) new CEO, Robert McDonald, steps into power just as the consumer products company faces a price gap with competitors—and a need to regain turf with new, less-premium brands. Procter reported earnings on Aug. 5 of $2.47 billion, down a surprising 18% from $3.02 billion a year earlier. It’s up to McDonald to navigate P&G through these choppy economic waters. The company saw volumes drop as it raised prices. Net sales decreased 11%, to $18.7 billion, while organic sales—which exclude currency changes, acquisitions, and divestitures—fell 1%. P&G said sales fell in several categories across its portfolio, as cash-strapped consumers chose lower-priced products. Procter was hit particularly hard in discretionary areas such as Pringles snacks, Braun electric shavers, Duracell batteries, Oral-B power toothbrushes, and its upscale fragrances. “They seem to be losing share in more places than they are gaining share,” says Ali Dibadj, an analyst with Sanford C. Bernstein. “So it was a very disappointing quarter.” P&G shares dropped nearly 3%, to 53.91. In recent years, under outgoing CEO A.G. Lafley, P&G thrived in large part because of its patented trade-up strategy. Emphasis was placed on higher-priced products as it attempted to drive growth by getting consumers to migrate from, say, basic Tide detergent to Tide Total Care. But that strategy has caused some pain during the recession as consumers cut discretionary spending. The company has suffered from having raised prices on popular brands over the past two years as it tried to offset higher commodity costs and foreign exchange losses. Company officials acknowledged during the conference call that price gaps between its products and cheaper alternatives, such as store or private-label brands, have dented sales. “We are addressing uncompetitive pricing spreads market by market,” McDonald told analysts Wednesday. “We are increasing the number of low-tier offerings…to more markets.” PRIVATE-LABEL THREAT McDonald gave a rather extensive glimpse into his plan to shake off P&G’s current slump and spark a return, in the years to come, to the 4%-to-6% growth the company has been known for during the past few years. Sure, he’ll cut prices but probably in no more than 5% to 10% of the company’s portfolio. Some analysts wonder if that is enough. In all but one of the past 12 years, private-label products have grown faster than branded products, studies show. The quality of private-label goods has improved to the point that consumers find little difference between them and premium brands, Dibadj says. That’s why many worry that P&G might not be investing enough in developing lower-tier products. The challenge, says Bill Pecoriello, CEO of Consumer Edge Research, an independent consumer research firm, is that lower-tier products also reap thinner margins. So P&G risks losing profitability if it neglects the high end upon which it has built its stellar financial reputation. Still, McDonald can’t afford not to try a dramatic shift to the low end. “Even though it is a lower-profit product, you would rather have consumers buy [Procter products] than trade them for a competitor’s product and lose share,” Pecoriello says. “Once you lose market share, it’s always very expensive to get that share back.” The real driver for long-term growth will come by reaching what McDonald calls the “underserved and unserved” consumer. He plans to increase P&G’s presence in emerging markets, such as India, Latin America, and Africa, where 86% of the world’s population lives. McDonald sees an opportunity to increase sales from these markets from 30% of the business to 40% over the next few years. McDonald also intends to sell more beauty products in drugstores, where the company currently has little presence. He wants to improve the e-commerce strategy, which now only produces $500 million in business. Under McDonald the company definitely will put more focus on lower-priced products, producing cheaper options in areas such as razors, diapers, and feminine products. But McDonald stressed that P&G will continue to expand its higher-margin businesses such as Olay beauty products and Tide detergents, through internal growth and even acquisitions. “We are focused on an approach to growth that balances continuity and change,” he said. 2009-08-06T21:08:15+00:00