‘Stable’ outlook for the consumer goods industry over the next 12 to 18 months: Moody’s

Moody’s predicts a “stable” outlook for the consumer goods sector over the next 12 to 18 months, with average operating profit growth expected to be between 3% and 5%.

That’s less than the 4-7% profit increase the ratings agency had previously forecast because of expected lower price growth, she noted.

“Growth will be driven by a gradual macroeconomic recovery and improving consumer sentiment as inflation slows and consumers adjust to higher prices,” Moody’s said.

The beverages sector is expected to slow in earnings growth, Moody’s says, with an operating forecast of 3% to 6% for the overall segment over the 12-18 month period.

For alcoholic beverages, high inventory levels and softening demand are likely to limit volume growth, but premiumization will help support earnings growth in 2025. For non-alcoholic beverages such as soft drinks, producers will likely “find it more difficult to maintain very strong performance in 2023 and some companies may have difficulty raising prices,” Moody’s said.

Packaged food companies

Over the next 12 to 18 months, packaged food companies are likely to rely less on price increases, which will limit margin improvement – for the entire packaged food sector, Moody’s forecasts average operating profit growth of around 3% to 5%.

The increase will be more significant for larger, more international companies, but more modest for developed market companies operating domestically, Moody’s said.

Elsewhere, the performance of packaged goods companies will likely be driven by their product mix and market exposure, Moody’s said, expecting operating profit growth of 4% to 7%; while for durable goods, operating profit is likely to increase by 3% to 7%.

Finally, tobacco prices are likely to see greater price increases, offsetting the decline in sales volumes. Operating profit growth in this segment is expected to range from 2% to 4%.

Improving economic prospects

Commenting on the consumer goods sector as a whole, Moody’s added: “We would consider changing the outlook to positive if we continue to expect operating profit growth of over 4%, but this would need to be coupled with an improving economic outlook, improved consumer sentiment and recovering volumes.”

“We would consider changing the outlook to negative if we expected average operating profit to be flat or declining.”