Scott Olson
Amid persistent inflation, fears of substitution effects impacting consumer staples providers have loomed large as of late. However, according to data from Morgan Stanley and Nielsen, shoppers are remaining choosy about their household purchases.
A late November Nielsen survey indicated that The Honest Company (NASDAQ:HNST) and Reynolds Consumer Products (NASDAQ:REYN) managed to drive strong revenue into the month, both bolstered by strong pricing power. In fact, the former was able to drive over 6% growth in sales volume year over year despite hiking prices by 14.9%. The latter relied more heavily on pricing adjustments, raising sticker prices by an average of over 17% from 2021, but remained dominant in aluminum foil, a category that came in behind only pet litter and disposable dishware in terms of year over year takeaway.
Procter & Gamble (NYSE:PG) was another strong performer, offsetting a 1.8% volume decline with a 10.8% increase in pricing. Dish soap and deodorant were cited as particular areas of strength as consumers continue to purchase name brands over generic alternatives.
Morgan Stanley also voiced optimism on the forecasts laid out in Procter & Gamble’s late November investor day.
“We thought the meeting generally served to highlight PG’s increasing organizational and supply chain effectiveness, which is yielding both greater productivity, as well as PG’s product superiority that is driving category growth beyond PG share gain,” Equity analyst Dara Mohsenian said.
He indicated that the company still has a long-term runway to growth, prompting his bullish rating on shares. Global share gains are expected to accelerate into 2023, with pricing power driving outperformance for the stock as supply chain issues dissipate.
“Easing comparisons should drive inflecting PG share trends going forward and more positive sentiment, as well as greater confidence in outsized PG LT topline outperformance vs HPC peers,” Mohsenian concluded.
JP Morgan’s analysts remain more cautious on P&G than their contemporaries at Morgan Stanley, having moved to Neutral in March due to inflation and foreign exchange headwinds. Instead, the bank’s analysts favored beverage industry exposure for investors seeking a more conservative profile, while Colgate-Palmolive (CL) gained a bull-rating as well for combining strong soap and deodorant demand with positive pricing in toothpaste as well.
JP Morgan also reiterated an Overweight rating on Newell Brands (NWL) despite deep declines in sales volume reflected in Nielsen’s survey. Per Nielsen, a 3.7% rise in pricing failed to offset an over 16% drop in volume. The bank’s analysts remain confident in the company’s ability to perform in an inflationary environment.
Elsewhere, both Church & Dwight (CHD) and Clorox (CLX) attracted Sell-equivalent ratings from JP Morgan amid sales volume declines. Kimberly-Clark (KMB) rounded out bearishly viewed consumer-facing names at JP Morgan given volume declines in both toilet tissue and disposable diapers. While Morgan Stanley likewise recommended a Sell rating on Church & Dwight (CHD), Clorox (CLX) was assigned a Hold in contrast to JP Morgan’s more bearish stance.
The two banks also found another point of disagreement on The Honest Company. While JP Morgan selected The Honest Company (HNST) as a Buy idea, Morgan Stanley remained on the sidelines and even reduced their price target after disappointing Q3 earnings results.
