What’s News in Earnings: Consumer Shakiness Worries Food and Drink Companies
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What are the current consumer spending trends?
Something is happening in the economy right now. Consumers feel shaky. Many are in belt-tightening mode, and they're buying less. For big soda makers, for big food companies, that's a worrisome development. Wall Street Journal reporter Laura Cooper covers the world of beverage and tobacco makers, and she's here to explain all that these companies and others are facing. Laura, great to see you.
Great to see you, Chip.
So big picture, what do the earnings reports show us about how consumers are feeling right now?
So consumers are feeling really cautious. Many of the chief executives that were speaking on the earnings calls I listened to over the last couple of weeks said that they're seeing consumer softness, that they're being more judicious about how they spend their money.
How are food and beverage companies responding to consumer caution?
That being said, some consumer groups are getting hit harder than others, but the general consumer sentiment is just largely not good.
And does this sentiment cut across industries? What are we hearing from big food and restaurant companies, for example?
Well, McDonald's reported its worst sales since the pandemic for established restaurants, and apparently middle and low income consumers are cutting their spending. So that's not great. Their chief executive said people are just being more judicious. That has echoed what I've heard in every single one of my beverage and tobacco calls. Hershey, which who doesn't love chocolate, is saying it expects a 30% drop in profits if tariffs stay where they are. I also hear this around coffee, things that people love that maybe would be something they could skip when they go to the store. The CEO of Kraft Heinz said that consumer sentiment had reached one of its lowest points. The implications is just there's tariffs, there's inflation.
What challenges are companies like McDonald's facing?
When people go to the supermarket, this is now on their mind.
You write a lot about beverage makers. And I wonder, given all of these factors that we're talking about, what companies are faring better right now and why?
So beverage makers aren't immune to the general softening consumer sentiment. Coke had solid earnings. However, they saw a 3% volume drop in North America, and that's an extremely important market for Coca-Cola. This had to do with a combination of things, among them consumer sentiment, but also a boycott from the Hispanic community. This stems from a video circulating online about the company potentially calling ICE to remove undocumented workers. And though Coke has denied that this has happened, This did impact their North America sales and sales in Latin America, another huge market for them. Keurig Dr. Pepper reported a solid quarter.
Which beverage companies are performing better amid the downturn?
That's always fun because they have Dr. Pepper, which is the darling soda of Gen Z. They also saw some good results from Ghost and some of their energy drinks. However, KDP owns Keurig, which is obviously a coffee company, and there's pressure there. People have been looking for deals in coffee for some time, but also now they could be impacted by tariffs. However, KDP had a strong quarter, and their beverage growth was really what stood out to everybody, especially the analysts that I spoke to.
You've also been focusing a lot on Pepsi lately. And as you reported, Pepsi has been struggling. It's been losing market share in the U.S. What do their turnaround efforts look like at this point?
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Chapters
5 chapters
1
What are the current consumer spending trends?
0:56–1:34
2
How are food and beverage companies responding to consumer caution?
1:34–2:27
3
What challenges are companies like McDonald's facing?
2:27–3:18
4
Which beverage companies are performing better amid the downturn?
3:18–5:38
5
What impact do tariffs have on companies like PepsiCo?
5:38–9:41