Consumers are Stressed & Big Banks’ Biggest Quarter

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**Ann Berry** (0:26)
Eli Lilly, the pharma giant, continues its spending spree, this time betting on psychedelics. Ticker-on-a-Sticker, the fan favorite, the banks edition. We run through earnings the best way we know how. And groceries, why the staples, usually prized for steady demand, sending markets into a tizzy. For Thursday, July 16th, it's Brew Markets Daily, and I'm Ann Berry.
More market details to come, but first, consumer staples. Those essential everyday products like food, drinks and hygiene items, the company making them historically prized by investors for their steady demand, regardless almost of economic conditions. Which is why the markets were in a tizzy about fresh grocery data showing that those staples are just not looking so stable these days after all, pressuring already depleted food stocks. Well, CNBC reported today a new analysis out from the consulting firm Bain & Company and the data giant Nielsen, which shows grocery unit product sales fell 1.8% in June versus a year earlier, showing consumers buying lower volumes in a real red flag moment. Now, this may seem a little dry, but stick with us because there are real market implications here. Take a big step back while food inflation has eased dramatically from its post-pandemic peaks. Remember those egg prices going up 30% in 2022, up 20% last year? Well, fatigued, budget-constrained consumers simply cannot absorb more price hikes. And shoppers have been voting with their wallets. They've been trading down to private label brands, a, quote, choiceful substitution that's driven the growth of Walmart's own brands and Costco's popular Kirkland Signature line.
And consumers are showing the kind of discipline now that we don't typically associate in a place where there's relatively easy access to credit. Consumers are waiting for promotions in groceries now instead of paying up full price. Pressure also coming from the retailer N2, not just from shoppers, with giants like Walmart and Kroger pushing on food makers to get those shelf prices down, even if it means squeezing their suppliers margins. Well, there's been a host of consequences for some of those blue chip consumer staple stocks. Conagra, which owns brands like Healthy Choice and Slim Gym, just took a $2 billion impairment charge and warned that organic sales could decline 1% to 3% this fiscal year. That's a lot for this kind of industry. That's as shoppers continue to pull back. We talked about that on the show earlier this week, but also the really bad news here, which is a cut in that company's dividend by 50%.
A clear sign that cash preservation is now a higher priority than sending income out to shareholders, which is not good when consumer staples are known for their steady eddy dividends over time. ConAgra shares down about 18% this year.
Then PepsiCo, snacks and drinks have been historically resilient, but that stocked down around 5%, reporting reduced consumer spending on these categories too.
They're leaning into innovation as the lever to try to pull growth back on up. Now to add to all this volatility, you've got organic growth at risk, meaning sector mergers, acquisitions and breakups have been rife. Just take a look at Kellogg, that split into Kellenova and WK Kellogg in 2023 Both of those individual businesses, though ultimately sold to Mars and Ferrero respectively. And then Kraft Heinz had a breakup on the cards at the top of this year. That's until a new CEO asked Wall Street for some patience and is now doubling down on trying to get savings across the firm's massive portfolio. So you can just imagine management teams head spinning, investors head spinning and consumers of course, really trying to navigate all of this hit to their budgets. So now just one person's view. This is my own take. I'm looking at two food giants who to me are ripe for activists to come in and shake them up. General Mills stocked down more than 20 percent over the past year as it's trying to muscle through a turnaround, still waiting to see strong signs there. And then you got Campbell's which dropped the name Soup from its title, and has also seen its stock price drop roughly 22 percent over the past 12 months. Now both, in my opinion, need a new catalyst to get their stocks moving again, particularly in the wake of news like today's on the grocery category. So hedge funds, we're looking at you. We're going to keep on watching.