Credit Suisse
U.S. Nielsen-measured food and beverage sales fell 0.1% over the four-week span ended Oct. 7, reversing from a 2% gain last month and a string of positive data since June.
Private-label sales and volume grew 2.1% and 0.3% respectively, below the year-to-date run rate of 3.3% and 2%. Branded food sales fell 0.6% versus last month’s 1.3% gain; volume was down 2.6% versus last month’s negative 0.7%. We find that the previous period’s outsize gains are being neutralized by this period’s drop, endorsing a pull-forward in consumption (pantry stocking) that benefited the prior period ended Sept. 9.
Hurricane Harvey made landfall on Aug. 25 while Hurricane Irma reached Florida on Sept. 10. We estimate over 5% of the total U.S. population was affected by these storms. Our post-storm survey of 40 grocers in Florida indicated busy store traffic in the days following the hurricane as consumers stocked up on food and replaced refrigerated items. However, today’s data indicate that these sales merely pulled forward volume from October, thus causing a net neutral storm impact on consumption in the third quarter.
Our Big Food group’s struggles continue, with sales down 2.4% in the four-week and down 1.2% in the 12-week. Pricing was up by 2.7% in the four-week, offsetting a dramatic volume decline of 5.2%. Private label continues to outperform, with sales up 3.7% in the 12-week and 3.3% year-to-date. Among our companies, Kellogg (ticker: K) and Campbell Soup (CPB) looked the weakest, and Pinnacle Foods (PF) the best at up 0.9% in sales growth in the four-week. We remain skeptical that the big branded-food companies will return to positive growth in a sustainable way.
While Wal-Mart Stores ’ (WMT) comments at its Investor Day regarding pricing were more benign than expected, the challenging landscape for struggling food brands continues due to private label emphasis and store layout changes ahead.
Hershey (HSY) sales down 1.9% in the four-week and flat in the 12-week. Sales declined from last month’s 0.7% increase in the four-week, while 12-week sales fell from 1.5%. Non-chocolate candy and gum continued to show gains, but chocolate candy (at roughly 75% of total consumption) drove losses with sales down 3% in the four-week and 1% in the 12-week, due to volume declines. Company-wide pricing grew by 1.8% in the 12-week, while volumes fell 1.7%. We remain optimistic of Hershey’s ability to drive second-half growth and margin expansion through new product launches and input-cost favorability.