P&G, Constellation Brands see solid U.S. demand, even as prices rise — a key reason we're shareholders

Published Fri, Feb 24 202312:13 PM EST

Club holdings Procter & Gamble (PG) and Constellation Brands (STZ) see resilient U.S. consumer demand despite persistent inflation, top executives at both companies said Thursday — highlighting our view that alcohol and staples like toothpaste don't go out of fashion, even in uncertain economic times. Speaking at the Consumer Analyst Group of New York Conference 2023, Constellation CEO Bill Newlands said American demand for the company's high-end Mexican beer portfolio remains strong, while P & G CEO Jon Moeller called U.S. shoppers "more robust" than those in other parts of the world. The comments from both chief executives come amid fresh signs Americans are opening their wallets at the start of the year, even as prices continue to rise. U.S. retail sales rose 3% month-on-month in January, far outpacing the Dow Jones estimate of a 1.9% increase, the Commerce Department said last week. At the same time, the department on Friday said its personal consumption expenditures price index — the Federal Reserve's preferred metric of inflation — climbed 0.6% in January. Constellation Brands "Consumer demand for our products remains strong even in a challenging macro environment," Newlands said. He touted "tremendous" growth across Constellation's beer, wine and spirits categories, calling the portfolio "incredibly well-positioned" in a slower economy. U.S.-based Constellation's Mexican beers include Modelo Especial, Corona and Pacifico. It also distributes a range of other high-quality alcoholic brands, such as Svedka vodka and Kim Crawford sauvignon blanc. Still, investors had recently been concerned over volatility in Constellation's fast-growing core beer brand, Modelo Especial. Newlands said beer depletion grew by more than 6% throughout December and January, ahead of the depletion rate the quarter prior, but added there had been a "rebound in volume growth" over the last several weeks. The CEO acknowledged that inflationary pressures will likely be present in the company's fiscal years 2023 and 2024. But said he expects operating margins in its beer business "just slightly below the medium-term range, which are still best in class margins in our industry." In its third quarter of fiscal 2023, Constellation's beer operating margin took a 380-basis-point hit compared with the year prior, falling to 37.5%, due to an increase in the cost of raw materials, packaging and logistics. Newlands on Thursday also said Constellation should see top-line beer growth between 7% to 9% in fiscal 2023 and 2024 — below the implied beer sales growth of 9% to 10% this fiscal year that the company