What these brands' earnings could say about the US consumer

Household brands Coca-Cola (KO) and Molson Coors (TAP) are just two of the consumer staples stocks set to report earnings this week, providing clearer insights into the state of the US consumer coming out of 2024.

Bank of America Managing Director of Equity Research Bryan Spillane joins Yahoo Finance Live to take a quick look at these brands, commenting on what to expect out of consumer outlook and the impact of GLP-1 weight loss drugs on the food industry.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

[AUDIO LOGO]

- Some of the biggest consumer staples companies like Kilonova, Molson Coors, Coca-Cola, they're releasing earnings this week. After the sector declined 3% in 2023 is recovery on the horizon. Here to tell us more we've got Brian Spillane who is the Bank of America Managing Director of Equity Research. Great to have you here with us this morning. What is the common denominator that we should be expecting going into these reports and the reality of what you believe these companies might say?

BRYAN SPILLANE: Hey, yeah. Thanks. Good morning? So I think this week, which is closer to the tail end of earnings season for the group, a couple of things we're watching for, one is volume growth, organic sales. It's been a real key theme across the whole space through this earnings season just the revenue deceleration and whether companies can grow volumes off of after several years of raising prices to keep up with inflation? We think that Coke sets up pretty well tomorrow.

We do expect to see a decent volume growth as they exit '23 and into '24. Molson Coors also which is reporting earnings tomorrow will also be interesting because they've gained market share. And they've really taken advantage of Bud Light over the last nine months. And we expect to see them have actually a pretty strong revenue print tomorrow as well.

- So Brian, of course, Coca-Cola, Warren Buffett, Berkshire Hathaway favorite there, in terms of what you're expecting, especially impact of GLP-1, we know that keeps coming up in conversations. Still waiting to see that though coming up in the bottom lines here. What are your expectations there?

BRYAN SPILLANE: So GLP-1, we look at it as almost like putting climate change in the 10-K. It is a horizon risk. How many people will actually be on these drugs? Will they stay on these drugs? What will their consumption patterns be? A lot of that is still unknown. So there's zero impact on current results. We don't have anything built in our models right now.

As we've taken a longer-term view and based on the projections that our healthcare analysts have in terms of potential user base over the next five years, it's like a 2% to 3% impact on calorie consumption. But again, it's a lot of headline, but not a lot of impact at least in terms of the way we see it right now.

- What is the read through that we could gather from the consumer from these reports as we're thinking about a consumer that has been more value conscious and as we were discussing earlier is looking for value hacks? What is that consumer resiliency story as it pertains to consumer staples that we hear from this week?

BRYAN SPILLANE: Yeah. It's a great question. So a couple of things that you might want to look for. One is consumer spending more time away from home. Pepsi reported on Friday. And one of the things they talked about was they're seeing an even more normalization of consumer mobility, so people still traveling, eating out more often back to the office. And it's caused a real channel shift which looks more like 2019 in terms of the amount that's consumed away from home versus at home.

So especially as we look at Coke and Molson Coors, two companies that have pretty large away from home or on premise businesses to the extent that consumer is out and about, if you will, and spending. That'll be one indicator of health of the consumer. I think the other in terms of consumer health, and I guess choices they're making, a lot of this is acclimating to price points. And what we perceive as a value today versus maybe what we did a few years ago.

And for instance with Coke, is it a 12-pack at $7.99 today or maybe $5.99 was the value price point before. So really trying to hear not so much the demand but just our consumers beginning to find value at certain price points when products are promoted.