As we move through the current earnings season, we've continued to learn from consumer packaged companies ranging from ConAgra (CAG) to Lamb Weston (LW) , and more recently Procter & Gamble (PG) , that pricing action taken in 2022 is fueling sequential margin improvement expectations in the coming quarters.
Moreover, some of those companies citing continued elasticity for their brands and products shared they are planning another round of price increases in the coming months.
At the same time, the December Retail Sales report found grocery sales during the December quarter rose 7.8% year over year. That combination suggests consensus expectations for certain consumer product companies, especially consumable food and beverage ones, may be a tad too conservative for the December quarter and first half of 2023.
Looking at the AAP portfolio, the two such companies that come to mind are McCormick & Co. (MKC) and PepsiCo (PEP) , both of which have come under pressure in recent weeks.
For McCormick, the consensus view has its revenue growing 1.75% in the first half of this year, while for PepsiCo the market expects 6.1% revenue growth for its December quarter vs. the 7.8% year over year growth found in the December Retail Sales report.
Despite what looks to be increasingly conservative top line expectations, both MKC and PEP shares have retrenched in recent weeks. Those same weeks have shown improving inflation data that paired with 2022 pricing action should become margin levers in the coming quarters. That mismatch is leading us to wade deeper into MKC and PEP shares, a move that will add to the portfolio's exposure to both of these dividend dynamo companies.
After you receive this alert, we will buy 145 shares of McCormick & Co. at or near $76.50. Following the trade, MKC will account for roughly 3.50% of the portfolio.
After you receive this Alert, we will buy 45 shares of PepsiCo at or near $168.20. Following the trade, PEP will account for roughly 3.9% of the portfolio.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)