I want to share some things I have learned while in the trenches planning a July and August viewing assault. Here are insights gleaned from talking to countless executives, from presidents of global divisions to CEOs to CFOs to company spokespeople that always have great fun facts on a company at their disposal.
Consumer Products Companies
The earnings report from General Mills (GIS) this week struck a nerve with me for one reason: a long-running cost savings plan to eradicate $4 billion in costs by 2020 may not be enough to counter nagging near-term inflation and price competition in supermarket aisles. So, General Mills is now evaluating its manufacturing capabilities, seeking to extract more cost savings on top of its long-running plan. Consumer products companies will be in perpetual restructuring mode for the foreseeable future due to inflation borne from land scarcity, supply chain pressures (healthier lifestyles putting pressure on quantities) and the race to the lowest price unfolding online. So, cost savings are being plowed back into even lower prices, causing profit margin pressure for many household staples.
Be hesitant to invest in these names because they pay off a great dividend, earnings risk is elevated and I believe a re-valuation of the sector is warranted.
The United States is increasingly being littered with the closures of large-box retail stores from the likes of Staples (SPLS), Office Depot (ODP) and Office Max. More are on the way and I have little idea as to how this real estate will be absorbed. I recently sat down for an interview with Planet Fitness CFO Dorvin Lively (former CFO of RadioShack (RSH)) and he said the rapidly-growing gym chain is opening new locations in former retail stores (about 20,000 square feet). The opening process takes roughly six months. But, I just don't see that many businesses in the mold of Planet Fitness out there that are eager to repurpose a former Borders or Kmart/Sears.
The Restaurant Business
The next great restaurant chain will appear within the next year and it will be born from top urban markets, not the test-kitchen concepts we drive by on the highway today. Such a chain will have a gourmet focus or another unique angle to present to the consumer, for example farm to table or cold-pressed juice drinks and seasonal, locally sourced ingredients. Once these chains prove themselves in top markets, led by founders, I expect national chains like Chipotle (CMG) and McDonald's (MCD) to make bids for the companies to establish entirely new growth platforms and leverage that successful new platform in existing concepts (think a cheap chic gourmet burger in McDonald's).