Global Home and Personal Care - Diversified and Defensive Portfolios Key Amid Delayed Volume Recovery
US HPC companies' core EPS beat estimates despite slowing sales growth. In the current quarter ending Sep 2024, US Home & Personal Care (HPC) companies reported core EPS that exceeded market expe...
Chief Investment Office - Hong Kong version30 Oct 2024
  • Productivity gains and pricing benefits supported EPS in the ongoing quarterly results despite softer organic sales growth from delayed volume recovery
  • With consumer spending still under pressure, volume may struggle to accelerate in the rest of 2024, heightening the need for promotions and advertising
  • Expect stronger volume recovery in latter part of 2025, driven by interest rate cuts and moderating inflation
  • Companies with geographically diversified portfolios and lower exposure to China and North America to outperform
  • Prefer companies with defensive portfolios focused on daily essentials over discretionary items like cosmetics
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US HPC companies' core EPS beat estimates despite slowing sales growth. In the current quarter ending Sep 2024, US Home & Personal Care (HPC) companies reported core EPS that exceeded market expectations, bolstered by productivity gains and pricing benefits that offset higher raw material costs, increased marketing expenses, and adverse foreign exchange impacts. Organic sales growth slowed to 1–7% y/y as volume recovery lagged at 0–4% growth despite tempered price hikes of 1–3%, mainly in hyperinflationary markets. Kimberly-Clark (KMB) lowered its FY24F organic sales growth guidance to 3–4% (from mid-single digits), while Colgate-Palmolive (CL) raised its target to 7–8% (from 6–8%), indicating moderating growth in 4Q24. Procter & Gamble (PG) maintained its FY25F organic sales growth target at 3–5%, expecting softer growth in 4Q24 and stronger growth in 2025.

Short-term volume growth challenges persist, acceleration expected in 2H25. With consumer spending still under pressure in some markets, HPC companies face decelerated volume growth that is likely to remain subdued in the near term. Modest organic sales growth is anticipated as the effects of prior price increases wane. Additionally, competition from private labels and increased trade-down behaviour may further constrain volume growth. In response, companies may intensify promotions, especially for lower-priced tiers and ramp up advertising efforts to drive demand, supported by cost-saving initiatives. Volume recovery is expected to be more assured in the latter part of 2025, bolstered by anticipated interest rate cuts, enhanced economic growth, and easing inflation.

Preference for diversified geographic exposure and defensive portfolios. Amid ongoing macroeconomic and political volatility, adverse foreign exchange movements, and slowdowns in markets like China, North America, and Latin America, companies with diversified geographic exposure and defensive product portfolios are preferred. Companies with lower exposure to China are favoured due to delayed demand recovery despite recent stimulus measures. We prefer companies with less concentration in North America where uncertainty surrounding the upcoming US election may affect consumer sentiment. Meanwhile, growth in Europe, Asia Pacific, the Middle East, and Africa appears more resilient, though still dependent on product categories. Companies focused on daily essentials are preferred as they demonstrate more resilient demand compared to discretionary items like cosmetics or prestige beauty products. CL exemplifies this with its geographically diverse portfolio and strong oral care segment, leading to better volume growth relative to peers.

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