Consumer staples look poised to outperform this earnings season
Updated
We've now had five early earnings reports from the consumer staples sector in the last couple weeks, including today's reports from General Mills and Constellation Brands. On average, EPS for these companies beat analyst estimates by 12.5%, revenue beat by over 3%. That suggests that analysts have underestimated both demand and profit margins for this sector in Q2. I think we'll see strong performance from the sector as we head into the July earnings season. The risk for this sector is that companies won't issue guidance for Q3. We've already seen weak post-earnings stock reactions from Kroger and General Mills as a result of their failure to issue guidance.
In addition to earnings outperformance in Q2, consumer staples may benefit from any news of economic "reclosing" as we go into Q3. Bank of America reported today that "The percent of businesses open relative to the baseline (pre-covid) levels has stalled at around -20% to -21% and the number of hourly employees working remains down around 23%-24%." Likewise, Goldman Sachs "calculates that 40% of the US has now reversed or placed reopening on hold." If consumers continue to stay home, then consumer staples sales will remain strong in Q3.
In addition to earnings outperformance in Q2, consumer staples may benefit from any news of economic "reclosing" as we go into Q3. Bank of America reported today that "The percent of businesses open relative to the baseline (pre-covid) levels has stalled at around -20% to -21% and the number of hourly employees working remains down around 23%-24%." Likewise, Goldman Sachs "calculates that 40% of the US has now reversed or placed reopening on hold." If consumers continue to stay home, then consumer staples sales will remain strong in Q3.
Note
Consumer staples have been one of my best performers this week, especially after CPI data showed grocery prices up several percent.
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