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The outlook for the global consumer packaged goods industry remains stable, Moody's Investors Service says in a new report. Aggregate operating profits and revenues will rise over the next 12 to 18 months despite slowing global economic growth, political uncertainties in developed markets and foreign-currency headwinds.
"Cost-cutting programs, restructuring initiatives, portfolio pruning, acquisitions and continued, if slowing, growth in emerging markets will drive operating profits and revenues higher for packaged goods companies," said Kevin Cassidy, a Moody's VP-Sr Credit Officer. "We expect aggregate operating profits to rise by 3%-4% and revenues to go up 1%-3% over the next one to two years."
The strong dollar will remain a headwind for US companies that generate a large portion of their revenues outside their home base, Cassidy says in "Pricing, Cost-Cutting Offset Geopolitical and FX Uncertainty to Drive Stable Growth." Procter & Gamble, Kimberly Clark and Avon Products will be among the most affected. Similarly, some European companies, including Unilever, will be hurt by recent appreciation in the euro. On the other hand, companies such as Reckitt Benckiser Group Plc, which reports in British pounds, will benefit from that currency's weakening.
Some US-based companies will seek to offset foreign-exchange headwinds by raising prices, though they will have more flexibility to do so in emerging markets than in developed ones, where promotional activity is more aggressive. Colgate Palmolive and Tupperware Brands, for example, have both increased prices in emerging markets in the past year, but lowered them in North America and Europe.
Meanwhile, regional geo-economic factors, reduced demand and political turmoil will weigh on growth in emerging markets including Argentina, Brazil, Mexico and Turkey, Moody's says. Among emerging economies, the market for beauty products in India and China will continue to drive growth. In mature markets, political and macroeconomic uncertainties such as Brexit will add to the sector's downside risk.
