High economic uncertainty coupled with declining volumes means that the outlook for the global consumer products industry is 'stable', despite projected profit growth, a new report from Moody's Investors Service has stated.
Average profit growth in the consumer products sector is likely to come in at around 4% to 7% over the next 12 to 18 months, Moody's said, driven mostly by price increases.
It added that it would normally change the outlook to 'positive' if profit growth was over 4%, however the high degree of uncertainty continues to weigh on economic forecasts, 'which increases risk to our profit expectations and our general industry outlook', Moody's said.
As Moody's noted, high interest rates are increasing the cost of debt for consumers, many of whom are trading down – even higher-income consumers are becoming more discriminating with what they spend their money on.
Read More: Consumer Sentiment In 2023 Likely To Remain Low, Says Moody's
Beverages
Profit growth in the beverage sector is likely to continue, Moody's added, boosted by price increases and continued volume recovery, as well as the reopening of the Chinese market and a rebound in travel retail.
Operating profit growth within beverages is expected to be around 5% to 8% over the next 12-18 months.
Packaged Food
Within packaged food, meanwhile, operating margins look set to strengthen, Moody's said, driven by price increases.
'Higher prices passed through in recent quarters are now covering higher costs,' it said, noting that volumes in packaged food have declined 'less than expected' given price increases, but this could change in an economic downturn.
It anticipates operating profit growth of between 4% to 7% in packaged food over the 12- to 18-month period.
Packaged Goods
Elsewhere, packaged goods firms continue to benefit from higher pricing, but consumers are trading down in some segments, Moody's added.
It expects to see operating profit growth of between 5% and 8% within this sector over the next 12-18 months.
Durable Goods And Tobacco
In durable goods, meanwhile, profit growth is set to lag the overall consumer products industry, with weaker economic growth and consumer confidence limiting demand, and in tobacco, price rises look set to continue to offset sales volumes declines.
Within durable goods, operating profit growth of 0% to 4% is expected, while in tobacco, profit growth of 2% to 5% is anticipated.
'We would change the outlook to positive if the macroeconomic outlook, and consumer sentiment in particular, improves and our operating profit forecast remains above 4.0%,' Moody's added. 'We would consider moving the outlook to negative if we expected average operating profit to decline.'
While operating margins and profit look set to improve as companies cycle weaker quarters (which did not benefit from price increases), margins may not be fully set to recover until 2024.
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