* So half way through the year and no disasters (except Carlsberg). But what are the key messages and takeaways from the European Consumer Staples companies?
* Organic growth is modest by long term standards at 3-4%. But the Q2 trends in practice were not materially different from those seen in Q1 bar a bit of weather or timing of Easter.
* Emerging Markets growth little changed: Organic growth in Emerging Markets has halved from the highs of 2 years ago, and been running 5-6% now for 5 quarters. However important to note that most of the growth in these regions is now price, volume growth has fallen from 6%+ to 1%. Latin American pricing has reached eye-watering levels of 20%+ in some quarters and accounts for over half the group organic growth of some companies.
* Emerging Markets still volatile: Even as we went through reporting season there was another sell-off in the Emerging Market currencies – which will likely mean volume growth in those markets remains under pressure.
Between first and last company reporting the Rouble fell 15% (versus the Euro), while the Real was down 11%, and there were several others that took a hefty step down (Turkey -10%, Mexico -5%, S Africa -5%). The FX tailwind that was getting on for 10% at the half way mark is now looking like mid/low single digits for the year (for a Euro reporter).
* Margins – mixed news: There may not be a lot of top line, but against a very benign input cost environment it is shaping up to be a good year for margins in Food/HPC in particular. Marketing cuts in the spirits stocks are helping offset negative mix pressures on gross margins, whilst investment step-ups and transactional currency headwinds in beer meant that margin expansion was modest relative to expectations.
* Forecasts & ratings: Given these FX moves we once again run through all our estimates with typically a 2-5% cut to 2016 earnings (based on Friday night FX rates), which we mirror in our price targets.
* Stock Calls: Going in to H2 it is the tobacco companies that look the best value to us. All are highlighting better pricing and stabilising markets, while comparatives get easier. Their valuations look relatively cheap versus staples as well. The flip-side of this is the companies dependent on Emerging Markets for growth are those we mainly steer clear of – SABMiller, Unilever and Danone.