Prepare to Pay More for Diapers, Clorox and Cat Litter Makers of household staples started raising prices last year on diapers, toilet paper and trash bags to offset higher commodity costs and boost profits. Executives are promising to raise even more prices this year.
Church & Dwight Co. CHD 1.21% recently increased prices for about one-third of its products, including Arm & Hammer cat litter and baking soda, and some OxiClean cleaning products.
“The good news is that competitors are raising [prices] in those categories as we speak,” Church & Dwight Chief Executive Matthew Farrell said on a conference call last week when the company reported higher quarterly sales and lower profits.
The company is now discussing more price increases with retailers, including for personal-care products, Mr. Farrell told analysts Tuesday.
Church & Dwight is one of several consumer-goods companies, including Procter & Gamble Co. , Colgate-Palmolive Co. and Clorox Co. , that have raised prices—or pledged to do so—in response to higher costs of raw materials and transportation, as well as unfavorable foreign-currency swings. (…)
After trying to combat weak demand by lowering prices, the industry’s biggest player, P&G, shifted its course last summer, announcing it would charge more for several of its brands, and several rivals followed suit. (…)
Sales volumes of household and personal products in the U.S. declined 1.4% in January, according to Bernstein’s analysis of data from Nielsen. Dollar sales of those products rose 0.7% in the period, Bernstein said, indicating that the price increases, on balance, are padding the bottom lines at consumer-goods companies. (…)
Clorox last year raised prices on about half of its portfolio, including its Glad trash bags and plastic wraps, which the company said helped it boost profit margins in the latest quarter. Yet Glad’s competitors didn’t follow with their own price increases as executives had expected, contributing to a sales decline in the period. To defend the brand’s market share, the company would boost spending on promotions in the near term, executives said last week.
Clorox said sales rose in other categories like cat litter and its namesake bleach, where it also raised prices recently.
CEO Benno Dorer last week voiced confidence in Clorox’s pricing strategy over the long term, and the company expects to invest in new products. Higher prices for Kingsford charcoal and Burt’s Bees products went into effect in December and February, respectively.
Starting in September, P&G began increasing prices on a rolling basis from around 4% to as much as 10% on various products, such as Pampers, Bounty, Charmin and Puffs brands. The increases will be mostly in place this month. (…)
It will be interesting to see how things pan out in coming months. The CPI-Housekeping Supplies is up 3.1% YoY in December after jumping at a 5.3% annualized rate in Q4 (+6.8% in November-December alone) (January data is out this Wednesday). Revenues of S&P 500 companies in that sector are at 2008 levels and their profits have just barely reached their 2014 level thanks to improving margins.
Analysts are not sold on the aggressive pricing strategy. Net earnings revisions remain negative. Investors are more hopeful if the group’s forward P/E ratio of 20.3 is any indication. (Data from Ed Yardeni).
RECESSION WATCH
Krugman Sees Possible U.S. Recession With Little Fed Wiggle Room Noble laureate Paul Krugman says the Federal Reserve doesn’t have the firepower to properly combat a slump.
[A recession within two years] “seems pretty likely,” Krugman said. “Pretty likely”! How likely is that? More than “likely” but less than “very likely” I presume.
From Markit’s Chris Williamson:
Auto makers reported the largest drop in new orders for six years. Machinery & equipment makers meanwhile saw the biggest drop in demand since 2009, hinting at reduced global business investment.
And there’s not even a hint of a coming turn:
From Blackstone:
Wage upsets Wage inflation for hourly workers employed by a number of our private equity portfolio companies is roughly 0.5% higher on average than comparable government data.1 In addition, a significant number of our CEOs report having to raise wages by 4-5%+ in 2018.1 We believe that government figures are lagging our own real-time data, implying wages will head higher. However, we aren’t yet worried about excessive wage inflation. It’s true that the Fed has typically viewed 4% wage growth as an important signal, which they respond to with tightening. But wages have been rising relatively slowly. And even when that threshold is reached for the first time in an economic cycle, a recession is more than two years away, on average.
Wages rising, not a concern yet
Almost 500,000 workers participated in work stoppages last year, driven primarily by protests in the education, health-care and social-assistance industries, the Labor Department said. Overall, there were more such disputes than in any year since 2007, and more people on strike or lockout than any year going back to 1987. (…)
BTW, from @biancoresearch via @LizAnnSonders:
CANADA
Similar to the US, Canada’s employment report surprised to the upside. (The Daily Shot)
Amazingly, Canadian private sector employment increased 268,000 in the last 5 months, equivalent to 643k annualized or 6.4 million in annual U.S. equivalent new jobs!!! Full time employment jumped 108k in the last 5 months, 259k annualized.
And yet:
Many American investors are short Canadian banks expecting an explosion in mortgage loan losses when the housing booms in Vancouver and Toronto end. NBF sheds an interesting light on this:
One of the most striking feature of Canadian labour markets is the extreme concentration of job creation in the three most populous metropolitan areas (Toronto-Montreal-Vancouver) where the pool of available workers continues to expand at a brisk pace. In January alone, 60% of the increase in Canada’s labour force was accounted by the Big-3. (…) Look no further than Canada’s immigration policy that targets young educated talent that will mostly settle in large urban areas – recall that Canada’s population growth is the fastest in the OECD. This development underpins housing demand in Canada’s largest cities.
Related?
Trump Signals Shift on Legal Immigration President’s recent comments suggest administration is open to easing curbs on high-skilled immigration
USA-CHINA
U.S. Naval Patrol Prompts Chinese Protest as Trade Talks Start
China upbeat on U.S. trade talks, but South China Sea tensions weigh
(…) “We, of course, hope, and the people of the world want to see, a good result,” Chinese Foreign Ministry spokeswoman Hua Chunying told reporters at a regular news briefing in Beijing. (…)
Asked if the ships’ passage would impact trade talks, Hua said that “a series of U.S. tricks” showed what Washington was thinking. But Hua added that China believed resolving trade frictions through dialogue was in the interests of both countries’ people, and of global economic growth. (…)
Trump Seeks to Boost AI as Chinese Competition Grows President Trump is expected to sign an executive order Monday aimed at boosting U.S. development of artificial intelligence—and at blunting China’s momentum in the field.
China’s lunar new year spending growth slowest since 2005 Consumption ebbs as weakening economy hits sentiment and fuels worries over retail sales
China’s small businesses forced to cut back on staff just to survive as economic mood sours amid trade war
Two Large Chinese Borrowers Miss Bond Payments, Sources Say Risks are piling up in a credit market that’s witnessing the most company failures on record.
Apple iPhone Shipments Dive in China as Huawei Tightens Grip Shipments plummeted an estimated 20 percent in 2018’s final quarter.
EARNINGS WATCH
Two-thirds of the way, we have 333 companies in, a stable 71% beat rate and a rising +3.9% Surprise Factor (from +2.2% two weeks ago and +3.4% on Feb. 5). Q4’18 earnings are now expected up 16.8% (13.9% ex-Energy), up from 14.2% two weeks ago (12.3% ex-E) and 15.8% on Jan. 1. These are from Refinitiv/IBES. Factset’s numbers guide to a 13.3% growth in Q4’18 earnings, up from 12.0% last week.
Trailing EPS are now $162.63, somewhat above the full year estimate which has finally moved up to $162.00 from $161.30 two weeks ago.
Analysts continue to revise their 2019 estimates downward pretty much across the board, a process that really broadened late in December like if they took their cue from the market correction or from the Fed’s flip-flop.
Interestingly, 48% of the 1876 revisions on S&P 500 companies last week were in 4 important sectors (Consumer Discretionary and Staples, Health Care and Industrials) and 54% of the these revisions were upward. Conversely, commodity-sensitive Materials and Energy accounted for 13% of all S&P 500 revisions but 69% were downward.
Some pundits emphasize that corporate pre-announcements for Q1’19 have turned very negative. It is a fact that there have been 2.8 times more negative than positive pre-announcements so far, in line with the long term average but substantially worse than at the same time during Q1’18 and Q4’18. However, the other fact is that, in absolute terms, we currently have the same number of negative guidance and the reason the ratio has deteriorated is that much fewer companies have pre-announced so far this quarter. Glass half-full or half-empty? The half-empty proponents will find support in the fact that there were 5 negative guidance last week, zero positive…
Corporate guidance is another area where aggregators have different data (!). Factset says that of the 65 companies that have issued guidance for Q1’19, 53 were negative and 12 positive with none in-line. Go figure! Anyway, if one uses Factset’s data, one can then see the glass very much half-empty since 82% of guidance is negative compared with a 71% 5-year average.
As a result, estimates for Q1’19 now show earnings declining 0.1% (+0.5% ex-E) from +5.3% on Jan. 1, a historically very large revision. Full year 2019 estimates now call for an rather uninspiring, though still positive, 4.3% earnings growth rate, down from 7.3% on Jan. 1.
TECHNICALS WATCH
Lowry’s Research remains positive, dismissing the notion that this is but a rally in a bear market, noting that, since 1940, current “signs of strength have been exhibited only in the early phases of major market rallies”.
- Turning 13/34–Week EMA? (via CMG Wealth)
Schumer and Sanders: Limit Corporate Stock Buybacks Corporate self-indulgence has become an enormous problem for workers and for the long-term strength of the economy.
(…) So focused on shareholder value, companies, rather than investing in ways to make their businesses more resilient or their workers more productive, have been dedicating ever larger shares of their profits to dividends and corporate share repurchases. (…) When more than 90 percent of corporate profits go to buybacks and dividends, there is reason to be concerned.
(…) when corporations direct resources to buy back shares on this scale, they restrain their capacity to reinvest profits more meaningfully in the company in terms of R&D, equipment, higher wages, paid medical leave, retirement benefits and worker retraining. (…)
If corporations continue to purchase their own stock at this rate, income disparities will continue to grow, productivity will suffer, the long-term strength of companies will diminish — and the American worker will fall further behind. (…)
Some may argue that if Congress limits stock buybacks, corporations could shift to issuing larger dividends. This is a valid concern — and we should also seriously consider policies to limit the payout of dividends, perhaps through the tax code. (…)
Aswath Damodaran, professor of finance at the Stern School of Business at NYU:
I am concerned about the declining manufacturing base and income inequality in the US, but I believe that their legislative proposal is built on premises that are at war with the data, and has the potential for making things worse, not better.
Thieves Hunt for Catalytic Converters
