We have assembled a list of key questions for several food, beverage and
tobacco company managements that will be presenting next week to investors.
Many of these are sensitive issues, we hope to have phrased many of these
questions in a manner that will facilitate some relevant insights.
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Food: Going into the back half of the year, we are most intrigued by Kellogg
as marketing investment accelerates and gross margin comparisons are
very favorable. Any evidence of acceleration in sales growth would be well
received by investors still on the sidelines. Kraft needs to convince investors
that there is a hockey stick effect ahead for margins in Europe and any
incremental granularity would be welcomed.
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Beverage: PepsiCo has a wide range of outstanding questions relating to
the bottling acquisitions. Having seen management with investors recently,
we believe that it will provide relevant granularity on some issues that are
highlighted in our note. Coke, for its part, has a meaningful level of insight
that it can provide on its international operations while CCE should be able
to speak to a number of issues on how the competitive landscape in North
America is changing. We believe that PepsiCo has handed CCE the
negotiating leverage it could never get on its own for striking a better longrange
agreement with Coke.
Internationally, FEMSA will also present. We believe that contrary to all the
gloom and doom that the Coke unit has received lately, business in Mexico
may be better than it has been in more than a decade and that the concerns
are grossly misplaced. The premier Coke bottler in the world with
exceptional results should be valued at a premium to its global peers and not
at a historically steep discount.
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Tobacco: The big question will be whether the second half of the year will
confirm the indications of 7-8% volume declines from 2Q09 results or
whether "clean" numbers will present a different reality. The most interesting
results to look for will include Altria's MST performance and the impact on
Reynolds American's Grizzly brand, the performance of RAI as promotions
for Pall Mall were dialed back and Lorillard's ability to maintain its growth
momentum for Newport and Maverick. Investors will also watch the FDA's
first steps to regulate tobacco and establish the Tobacco Products Scientific
Advisory Committee.