Daily Brief: Whether You’re Stuck Indoors Or Out And About, There’s No Escaping Nestlé Right Now

Daily Brief: Whether You’re Stuck Indoors Or Out And About, There’s No Escaping Nestlé Right Now

almost 3 years ago3 mins

Nestlé announced better-than-expected first-quarter sales on Thursday, as the world’s gradual economic recovery finally gave the Swiss giant the break it’s been craving.

What does this mean?

Get yourself a consumer goods company that can do both: the household snacks that stuck-at-home folks needed to endure their fifteenth lockdown in a row, and the supplies that Asian bars, restaurants, and shops needed to fling their doors open once again. That one-two punch drove Nestlé’s underlying sales – i.e. disregarding currency swings and new mergers and acquisitions – almost 8% higher than the same time last year. That was more than twice the growth analysts were expecting, and investors were cool with it: they sent Nestlé’s stock 3% higher.

Better recipe
Source: The Wall Street Journal

Why should I care?

For markets: Extravagance is the new in-travagance.

Nestlé’s uptick in sales is just one of several signs that a consumer spending boom is in full swing. Here’s another one: professional investors have been noticing a trend toward more upscale products as shoppers spend the cash they’ve been saving over the last year, particularly among things like cosmetics, spirits, and clothing. Case in point: luxury brand Hermès and spirits firm Pernod Ricard reported an uplift in sales on Thursday.

The bigger picture: Chinese customers are spending big.

Strong results aren’t the only thing Nestlé, Hermès, and Pernod Ricard have in common: all three seriously benefited from robust consumer spending in China. That’ll happen when Chinese consumers are given the freedom to shop as they please – a luxury that still isn’t being afforded to many Europeans and Americans. Companies that aren’t big in China, then, might be feeling a pang of regret. Or regrette, in Renault’s case: the French carmaker reported worse-than-expected earnings on Thursday, even as other carmakers like BMW and Daimler – both of which have big businesses in China – beat expectations.

Chinese dominate luxury spending

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Southwest Airlines' Results Beat Expectations

Southwest image

Southwest Airlines posted better-than-expected earnings on Thursday, and the world’s biggest budget carrier is confident it’ll be going places come June.

What does this mean?

Now that the vaccine rollout is well underway, it’s only a matter of time before Americans get back to doing what they do best: filling their Instagrams with posts of them leaning against faraway monuments. Southwest Airlines announced that domestic leisure travel bookings are on the rise, not to mention that the number of flights will look much the same in June 2021 as it did in June 2019. Incidentally, June’s also when the airline is expecting to stop burning through cash and finally break even again. Add to that a smaller-than-expected loss last quarter, and it’s easy to understand why investors initially sent its shares 3% higher.

Life in leisure

Why should I care?

For markets: Budget airlines could take off quicker than big carriers.

American Airlines posted strong results on Thursday too, which might’ve come as a relief after bigger-than-expected losses at industry-leaders United Airlines and Delta Air Lines earlier this month. But while all three big carriers sound more upbeat about the future, it might be budget airlines like Southwest – with a business model focused on frugality, domestic flights, and leisure travel – that lead the aviation industry’s post-pandemic recovery.

Commercial airlines’ net profit
Commercial airlines’ net profit worldwide 2006-2021 (in billion US dollars)

The bigger picture: European airlines don’t have so much to look forward to.

According to fresh analysis by one major airline organization, a slower-than-expected global inoculation is holding back international travel. It reckons the delay will cost airlines $10 billion more than predicted, putting the industry at risk of a $48 billion shortfall this year. Still, US airlines stand to come out of it the best: the country’s rapid vaccination rollout and major domestic market means they’re expected to have the smallest losses relative to sales – while Europe’s fumbled efforts will put its airlines at the bottom of the pack.

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