2203-CAGNY-Down

CAGNY 2022: Five Food and Beverage Companies Coming Off a Difficult 2021

March 3, 2022
Our report from the financial analysts' conference finds Unilever, General Mills, Smucker, Nestle and Kraft all could have done better in the second pandemic year.

"Today's unprecedented operating environment, from its worldwide supply disruptions to accelerating cost inflation, is temporarily blurring what has been tremendous progress…" Steve Cahillane, chairman and CEO of Kellogg Co., could well have been speaking for all the food & beverage executives presenting at the February Consumer Analyst Group of New York (CAGNY) meeting.

For most of the 12 big food & beverage companies with headquarters or significant operations in North America, 2021 was a year of robust sales growth, fueled equally by continued pandemic shopping habits and inflation. But, according to their presentations at CAGNY, underlying volume growth was a lot harder to come by.

CAGNY is an annual February affair, for the second time a virtual conference because of the pandemic. It also was largely influenced by what then was the lingering pandemic; although it occurred a day or three before the invasion of Ukraine, which could change the fortunes of many of these global companies. CAGNY gives the CEOs of some of the top food & beverage companies a stage on which to "sell" their companies' 2022 plans to the investment community.

Unilever was a typical example. 2021 net sales grew 4.5% to 52.4 billion euros ($59 billion) thanks to price increases, but volume grew by only 1.6%. Following its aborted talks in January to acquire GSK's Consumer Health Business for $48 billion, Unilever said it's no longer looking for big acquisitions. Instead, it undertook a reorganization that will lay off 1,500 managers and split the company into five business units from the current three. Despite foods and ice cream being separated and several food lines being sold in the past year or two, CEO Alan Jope said the company remains committed to both Nutrition and Ice Cream.

General Mills is "reshaping the portfolio" as it continues to build a petfood business around the 2018 acquisition of Blue Buffalo – sales of which have grown by $600 million. However, the rest of the company is facing headwinds from cost increases, and FY 2022 (the company is on a June 1 fiscal year) operating profit is expected to be down -1-4%. The company is "actively looking for acquisitions and divestitures," said Chairman & CEO Jeff Harmening. "Since FY2018, we've turned over 15% of our net sales through acquisitions and divestitures." For the six months ending Nov. 28, 2021 sales were up 5% to $9.6 billion but net income was down $100 million to $1.2 billion.

Also in the midst of a transformation, as well as the middle of its fiscal year, J.M. Smucker's half-year result were a little disappointing. For the six months ending Oct,. 31, 2021, sales were off by nearly $100 million to $3.908 billion, and net income dropped 23% to $360 million. But CEO Mark Smucker noted that includes the divestiture of the Crisco shortening business, part of a continuing effort to refocus its portfolio. Pet foods are now the biggest part of the company, and coffee's not far behind.

Nestle SA is another company in flux. François-Xavier Roger, EVP & CFO, said the company has "rotated" around 20% of its portfolio over the past five years, both buying and selling. Nestlé completed acquisitions and divestments with a total value of around CHF 9.9 billion in 2021. Global sales last year increased 3%, but North American sales were down by $231 million, the result of the 2021 divestiture of its North American Waters business. Without that, North American sales "posted high single-digit organic growth." As of this Jan. 1, the company is reorganized into five Zones: Zone North America, Zone Latin America, Zone Europe, Zone Asia, Oceania and Africa, and Zone Greater China.

Kraft Heinz 2021 net sales were down $143 million to $26.042 billion, but that included the sale of most of the company’s cheese business last year. On the other hand, net income nearly tripled, to $1.024 billion. U.S. sales declined by $600 million, but that was nearly made up by increases in Canada and the rest of the world. CEO Miguel Patricio, who will also get the title of chairman next month, said the company is entering the third and final phase of his planned transformation. “The first two phases of our transformation were designed to bring scale and agility together." In this final phase, which Kraft Heinz is calling "Agile@Scale," the company is "transitioning from our size working against us, to our scale working for us.” Kraft Heinz is raising its long-term financial outlooks for sales growth, earnings and earnings per share.

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