FMCG CEOs: Q1 2024 Results In Review - The Pricing Tide Is Now Going Out

'A rising tide floats all boats….. only when the tide goes out do you discover who's been swimming naked' - Warren Buffet

To join the ~19,000 FMCG executives that receive automatically all our FMCG CEOs Insights (posts & articles like this one), sign-up to our newsletter at the following link: FMCG CEOs: Managing For Growth

It's a wrap for the (calendar) Q1 2024 earnings season for the world largest listed FMCG companies (n=46 in Q1)

Here is our take in five key messages:

1) 33% (down from 50% in Q4 2023) missed their top-line guidance while majority continued to beat their EPS (benefiting from the pricing that now fully flows to the bottom-line). The overall in a context the majority of FMCG companies (73% exactly) lowered their 2024 guidance to get back to their 'long-term 3-5% algo' while benefiting in Q1 from, on average, a 4.5% pricing (much higher than the long-term pricing contribution to net revenue growth). This carry-over won't last forever as the tide goes out. In this context, the top 50 FMCGs started to increase their A&P to support revenue (out of the few that report A&P on a quarterly basis, 75% increased A&P in Q1 - trend to be confirmed in Q2/ H1)

2) Bottom-line wise, picture is rosier. If the majority improved EBIT (75%) and GM (93%), still only half recovered their pre-COVID profitability (vs. only <30% in Q4 2023). On average FMCG companies grew by 57% their absolute EBIT vs. pre-COVID. Since the beginning of the year, few (9 out of 55) announced large cost-take out programs & many lay-offs program (16 out of 55) to accelerate their pre-COVID profitability % recovery

3) BPC continues to lead the pack on the back of the lowest price elasticity in the FMCG industry. Alcoholic Drinks (Beer-driven) shows some volume improvement while CHC suffers from a weak C&F season. Challenges remain on F&B. Household continues to show volume resilience. At a company level, the biggest outperformers this quarter were (again) KO (+11% revenue) and Colgate (+10%) that both continue to impress. Danone & Unilever confirm their turnaround trajectory with promising results (Danone was the only F&B company to grow volume in Q1 2024!). Estee Lauder bounced back stronger than expected although the full top-/bottom-line recovery is still expected to take time. Nestle was the top underperformer (+1% revenue growth & missing again top-line consensus) along with all the usual US-centric F&B players (Kraft-Heinz, General Mills, Campbell's... - although only Kraft-Heinz missed top-line this quarter). The overall was reflected in the stock price performance

3) Among next-gen listed FMCG assets, E.L.F continues to impress (+70% growth, reached over >$1bn on a yearly basis!) while Hims is now profitable and first question marks start emerging about Oddity (now down 30% post IPO). Oatly continues its turnaround journey

4) Q1 2024 recorded a new low for M&A activity (both in terms of transactions & value) in the FMCG industry. We saw also the reinforcement of four trends (a majority & more mid-size deals; a majority & more same categories deals; a majority & more US-based assets; divesture now exceeding acquisitions value)

To know more about M&A, please refer to our previous dedicated publications:

5) Retailers wise, we notice an increasing polarization of performance especially in the US (Walmart/ Costco vs. the rest). The US drugstore channel continues to suffer from a wide competition (online, grocers, beauty specialists). E-tailers wise, AMZ & MELI continue to outperform top-/bottom-line wise while Chinese players (BABA, JD) are now progressively bouncing-back in what remains an uncertain context. The world largest retailers (Walmart, Costco, Carrefour) continue to grow strongly ecommerce (>20% growth)

Bringing it all together, another quarter of progress at the world largest FMCG companies, especially on profitability front. When it comes to top-line growth, most still have to demonstrate that they can renew with their mid-term top-line commitments (3-5%) without any major pricing.

As Warren Buffet once put it:

'A rising tide floats all boats….. only when the tide goes out do you discover who's been swimming naked'

In this challenging context, we continue to advocate for a change in strategy::

• On organic growth where on average the world largest FMCG companies lost market share over the last decade (cf. the below article detailing our views)

• In Emerging Markets that account for >2/3 of global FMCG growth (cf. the below article detailing our views):

• On Ecommerce that continues to account for ~20% global share of growth with peak up to >45% on Beauty and Pet Care (cf. the below article detailing our views):

• On M&A where unprecedented opportunities now emerge but where risks remain multiple (cf. the below article detailing our views):

Exciting times

Get in touch:

To follow Frederic, please click Here , To start a conversation, email at: [email protected]

To get the full deck of this publication, please write us at [email protected]

To subscribe to our newsletter and receive all our CEOs Insights, sign-up at the following link: FMCG CEOs: Managing For Growth

About the Firm:

Frederic Fernandez & Associates (FFA) is a global bespoke Strategy Consulting Firm exclusively focused on Organic Growth (Zero-Based-Growth? approach), Digital GTM (Ecommerce 2.0?, DTC & Ecoystems and EB2B) and M&A serving the world largest FMCG companies. Its purpose is to help its clients win today while renewing their competitive advantages to win tomorrow. 14 out of the top world 20 largest FMCG companies are repeat Clients.

The Firm's team intervenes all across the globe and across all FMCG categories. To know more about the Firm, please visit our websites:

www.fredericfernandezassociates.com

www.exponentialfmcg.com

No FFA employees own any stocks or financial instruments of any FMCG companies or companies mentioned in the above article. All the above information are public information