As the tariff-induced economic deep-freeze kicks in, could soft drinks be a warm place to hide out the storm?
Admittedly, your humble Daily Briefing is hardly a stock market prognosticator – and, moreover, there’s little to suggest the White House has all their next moves planned out; that’s to say, expect things to change in ways few can predict.
But in equity research coverage published this morning, analysts at Jeffries cited CSDs as relatively stable ground within a market rocked by President Trump’s new tariff policies.
Why soft drinks? They’ve been more resilient than other Staple categories thus far, per the report, and the range of countermeasures (promos, price-pack architecture, or just price itself) it can deploy may mitigate some of the worst potential near-term damage. Amidst the top players:
- Only Pepsi is projected to miss top and bottom-line projections on Q1, but that’s more so due to underperforming Frito Lay.
- Full-year guidance is unchanged for Coca-Cola, as its “strategy seems to be working,” with more cash flow on the way following its final payment for Fairlife.
- Keurig Dr Pepper’s (KDP) fully loaded drinks portfolio (+9% guidance, up from 6.8%) will help offset softer coffee sales (-3%, down from -2%) in Q1, per analysts’ outlook.
In energy drinks, Monster is “in great shape,” backed by category tailwinds, innovation that’s driving sales, and at least a year’s worth of stable aluminum pricing. Celsius is expected to post declining sales in Q1, but the rest of the year should look better on the back of new innovation, higher marketing spend and Alani Nu’s integration.
Despite the specter of tariffs on imported coconut products, Vita Coco is showing positive signals (estimated 17% organic sales growth in Q1) thanks to normalized inventory, high demand and improved shipping container availability.
Along with watching the stock market through our fingers, we’ll be tuning in to Walmart’s annual investor Q&A session this Thursday, where CEO Doug McMillon is expected to share his perspective, either explicitly or implicitly, on the current situation.
As Jefferies U.S. Consumer Strategist Carey M. Kaufman noted in his newsletter sent late Sunday, McMillon could offer insight into both the retailer’s outlook (will mid-to-high income consumers start trading down?) and the broader viability of Trump’s vision (i.e. resurrecting American manufacturing power).
What Kaufman said: “The broader message we might hear that could give the entire retail sector a pause – and offer a counterbalance to the notion that we are going to reshore production of all kinds of products – is the inability to move most low skilled labor and manufacturing back to the USA.
Committing huge amounts of time (months to years between design and construction) and capital to build a factory in Iowa only to risk that a future administration (or this one I guess) will repeal tariffs and make that asset uncompetitive seems kind of obvious.”