As a biotech investor, I would normally not pay a lot of attention to what the CPG (consumer product / goods) companies say in their earnings.
However, now I am paying attention because the biotech sector, which is a sub-component of growth sector, is trading VERY SENSITIVELY to INFLATION EXPECTATIONS. CPG companies tend to serve as great bellweather for inflation.
Today was P&G’s earnings – a great American consumer business with its products reaching every element of day-to-day lives of Americans and many others. In my home, I already use at least 3 products shown in P&G’s selected product line-up.
P&G showed great performance with organic growth at mid single digit (~5%). However, primary driver of the organic growth rate has been driven by price increases. As shown in below break-down of volume growth vs organic growth. Essentially, organic growth – volume growth = price growth.
P&G noted only 2%p of overall growth of 5% was from price, but mix was another 2%p. I think product mix is essentially a price increase as companies introduce higher priced products to improve ASP (average sales price). Volume growth was overall flat – which indicates that price+FX (foreign exchange impact) growth were SOLE growth of the mid-single digit growth.
One could argue that “OH THAT IS JUST HISTORICAL AND YOU GOTTA LOOK AHEAD” – this is a fair question. Sadly, P&G is guiding to price increases going forward as well.
“Price increase will be in the range of mid-to-high single digit percentages and will go into effect in mid-September“
This price increase is in response to sharp increases in commodity prices.
IN SUMMARY
Inflation is going up – this is short-term negative for growth stocks whose cashflows are largely in the future. Financial market is obviously responding to it. However, this creates great opportunities to pick out winners that will show great performance coming out of this crisis.
In biotech, I am sticking with my long-term bets with secular tailwind behind them – immunology, oncology, and rare disease. In the end, those products have very strong value propositions that give them strong defense against pricing pressure and deliver break-through innovation to improve human lives.
How are you positioning your portfolio? Are you trimming growth? Please share below!
Happy investing and best of luck to us all!
*not investment advice.
