Consumption growth will be biggest question for consumer goods companies, says BofA's Peter Galbo

Kelly Evans (Host) 00:00.150

peter galbo is head of consumer staples equity research at B of A peter it's great to see you

Peter Galbo (Head of Consumer Staples Equity Research) 00:06.180

thanks kelly great to

Kelly Evans (Host) 00:06.940

see you let's start with why you think food prices are going to stay high

Peter Galbo (Head of Consumer Staples Equity Research) 00:12.180

so kelly our call actually isn't that prices are going to stay as high as they were in twenty five you had a number of discrete factors across certain commodities we call them the four CS or the three CS in the report out this morning cocoa coffee and cattle you had tariff

Peter Galbo (Head of Consumer Staples Equity Research) 00:28.980

induced pricing that was going in place that seems to be a tailwind for for next year as those start to fall away cattle alone had some tariff dynamics but also just some fundamental cases as the cattle herd continues to to decline and again it's not that we think prices won't

Peter Galbo (Head of Consumer Staples Equity Research) 00:45.150

be significantly lower next year it's just they're going to be going up against very difficult year ago comparisons and so we'd expect a little bit of relief in some of the key commodities so

Kelly Evans (Host) 00:54.830

you think in other words that we start to get some it would make sense we start to get some price relief in some ways i'm surprised it hasn't happened already

Peter Galbo (Head of Consumer Staples Equity Research) 01:02.750

so you've heard it now in the past couple of weeks from from kind of the two bellwethers of the food group and and the question for twenty six particularly for the food and beverage companies is going to be do any of the the deflation and some of their input costs get competed

Peter Galbo (Head of Consumer Staples Equity Research) 01:16.590

away you have general mills and pepsico who have now come out and not only said that they're going to lower prices on products but actually start to enact that in place the real question as we heard from conagra today they're still taking pricing in certain categories is are

Peter Galbo (Head of Consumer Staples Equity Research) 01:30.750

they going to have to turn around nine twelve months you know time period and basically reverse that this

Kelly Evans (Host) 01:35.950

is hugely positive for consumers obviously look i'm sorry to the companies but this is the covid unwind still don't you think this is it would make sense at some point that once you get away from this period of incredibly high inflation and and rising inflation to something a

Kelly Evans (Host) 01:49.310

little bit more steady they're going to have to start even anecdotally you know i see receipts coming home from the grocery stores where people are saving two three four five dollars on these kind of big box big brand items and you think this doesn't feel like a one off this

Kelly Evans (Host) 02:03.630

feels more like a reset

Peter Galbo (Head of Consumer Staples Equity Research) 02:07.100

i think that's right kelly and look if if you look at what we published today we titled our note you know K is for cookie we're talking about the K economy we're looking at the low income consumer these are daily use categories when we talk about consumer staples and you know

Peter Galbo (Head of Consumer Staples Equity Research) 02:21.780

unlike other consumer verticals whether it's restaurants retail hotels the high income consumer doesn't necessarily consume more daily use categories just because they feel good about the economy but low income consumers certainly can consume less and so unless these companies

Peter Galbo (Head of Consumer Staples Equity Research) 02:35.820

are going to give them a break on pricing on certain products we think that that you know volume drag from low income continues to be a headwind so that'll be you know the real telltale sign as we pivot into twenty six

Kelly Evans (Host) 02:45.990

yeah your top picks for next year you have a coke monster and what's coco

Peter Galbo (Head of Consumer Staples Equity Research) 02:51.800

cocoa is is the vita coco company coconut water the the only beverage category that's probably rivaling energy drinks at this point in terms of growth rates really more of a structural tailwind as a not only a before workout drink a post workout drink a post maybe night out

Peter Galbo (Head of Consumer Staples Equity Research) 03:09.480

drink for some folks so it's really had more of a structural growth story behind it was a tariff loser that now becomes a tariff winner as as coconut water gets exempted and so we like the stock heading into that is

Kelly Evans (Host) 03:20.720

fascinating that the fact they're publicly traded that they were exempted from tariffs and that this wasn't a ten years ago story any point of view peter i don't know if you cover lamb weston but what a huge move and a shocker there

Peter Galbo (Head of Consumer Staples Equity Research) 03:33.730

we we do cover lamb weston i think coming into the quarter the expectation was that you know there would be better margin improvement you know the sales actually came in about in line with where the street was and what expectations were but really the margin improvement and the

Peter Galbo (Head of Consumer Staples Equity Research) 03:47.970

margin outlook for the back half of the year particularly in some of lamb westons international markets has been relatively disappointing and i think that's what you're seeing you know reflected in the shares