Before embattled Federal Reserve Chairman Jerome Powell signs off on the stock market’s long desired interest rate cut this month, he should take a look at the latest financials of big food.
Powell would likely come to this conclusion: The U.S. isn’t in recession, it’s not headed toward a recession this year and there is no reason to slash interest rates.
Just look at the commentary coming out of cereal and snacks giant General Mills (GIS). The company is fresh off an investor day on Tuesday, predicting continued momentum in its key cereal business and with Mexican dinner prep brand Old El Paso. Blue Buffalo, an all natural pet food brand acquired by General Mills (GIS) last year, is also poised to see strong growth over the next 12 months amid new product introductions (think more treats, pet parents) and a deeper push into the shelves at mass merchants like Walmart.
General Mills CEO Jeff Harmening tells Yahoo Finance that he sees no signs of a U.S. recession in the company’s results. Consumers continue to put more items in their basket rather than less, according to Harmening, which is what you would expect with an economy boasting a 3.7% unemployment rate. Harmening says a higher-end brand such as Blue Buffalo is experiencing triple-digit growth in some distribution channels.
If the economy was falling apart, rest assured households would be buying cheaper pet food (we are looking at you, Pedigree).
General Mills reiterated its sales and earnings guidance for the next 12 months at its investor gathering Tuesday. That doesn’t happen if Harmening and his team aren’t confident the economy would hold up and consumers won’t be willing to pay a bit more for new Fiber One snack bar innovations (they are coming).
The added kick to the face of recession callers on Wall Street: General Mills has had success pushing through price increases to consumers to offset its higher costs.
Pepsi also strong
That is not too far removed from the story at snacks and beverage maker PepsiCo, which is also coming off a solid quarter.
PepsiCo reported second quarter total revenue of $16.45 billion Tuesday morning, beating Wall Street forecasts for $16.43 billion. Organic revenue — a key performance measure for the company — rose 4.5%, topping analyst forecasts for 4.3% growth. Earnings tallied $1.54 a share versus estimates for $1.50 a share.
The company’s Frito Lay business in the U.S. was again a standout amid interest in Cheetos and Doritos. While PepsiCo’s overall North America beverage business had a mixed showing due to pressure on Gatorade and Mountain Dew, PepsiCo Chief Financial Officer Hugh Johnston told Yahoo Finance the core Pepsi business is “back in growth mode.”
PepsiCo — similar to General Mills — has had success in taking price increases on its food products, Johnston said.
Sound like recessionary conditions in the U.S. that warrant a 50 basis point rate cut from the Fed? Not exactly.