Interesting article! I probably wouldn't put so much emphasis on the method of sales forecasting. To me, it looks more like they are making general assumptions about volume growth (e.g., through population growth) and price growth (e.g., inflation). And the fact that pricing power is not infinite and that retailers/supermarkets sometimes resist it, happens more often.
Great note Herb - Watch POST - it has taken pricing far in excess of not only inflation in commodity prices, but in transportation, warehousing, and labor plus cut advertising to drive earnings from a normal $2.00 +/- 50-cents to $5.00. Every cost has collapsed on them (in the case of eggs down 80%) with their advertising rising again as it complains customers are trading down - yet forecasts still have them at almost $5 this year and $6 next.
Had to revisit this piece again. Maybe it’s obvious to finance professionals, but my layperson takeaway: the consumer cries uncle (soon, one would assume, like the midwestern grandma), then even the blue chips lose pricing power and margins erode. And to avoid or in response to earnings misses, companies pull the next available lever: cost reductions (layoffs). That’s when the recession hits.
Interesting article! I probably wouldn't put so much emphasis on the method of sales forecasting. To me, it looks more like they are making general assumptions about volume growth (e.g., through population growth) and price growth (e.g., inflation). And the fact that pricing power is not infinite and that retailers/supermarkets sometimes resist it, happens more often.
Thanks Brian! Good question... will be watching it all unfold!
Great piece Herb. Been wondering about KO. Not the same brand when Buffett was big on it in 80’s and 90’s.
Great note Herb - Watch POST - it has taken pricing far in excess of not only inflation in commodity prices, but in transportation, warehousing, and labor plus cut advertising to drive earnings from a normal $2.00 +/- 50-cents to $5.00. Every cost has collapsed on them (in the case of eggs down 80%) with their advertising rising again as it complains customers are trading down - yet forecasts still have them at almost $5 this year and $6 next.
Had to revisit this piece again. Maybe it’s obvious to finance professionals, but my layperson takeaway: the consumer cries uncle (soon, one would assume, like the midwestern grandma), then even the blue chips lose pricing power and margins erode. And to avoid or in response to earnings misses, companies pull the next available lever: cost reductions (layoffs). That’s when the recession hits.
Pepsi’s price-mix 2-year stack is a whopping 30%!
Wondering how much impact the anti-diabetic injectionable meds will affect these three companies?
Too bad reality isn’t always as easy as the “analysts” AKA spreadsheet modelers who multiply revenues by 1plus x and costs by 1 plus half x. 😢