Consumer companies will suffer from exposure to EMEA, says Moody's

Companies in consumer-facing industries like beverages and clothing with strong exposure to Europe, the Middle East and Africa (EMEA) are going to lag global sales and profit growth in 2016, Moody's has warned.

The credit agency said the slowdown in emerging markets, increasing pricing pressures and weak demand in the EMEA region will all weigh.

Companies with a greater reliance on the region, Moody's said, will lag global operating profit growth in the consumer product industry by 3-4%.

On the upside, low commodity prices, cost savings and the weak euro are expected by the agency to largely offset the demand headwinds, keeping the outlook broadly stable for these sectors in 2016.

Unilever and Reckitt Benckiser's ratings were both held as stable at their A1, while overseas listed groups like Nestle and Danone also offer no concerns. Premier Foods rating depends on its ability to maintain recent sales growth momentum.

"Manufacturers of branded consumer products will have to sustain high levels of innovation, marketing and promotion to protect their global market shares and secure shelf space", said senior credit officer Paolo Leschiutta.

"However, exporters could have the edge, benefitting from the strong dollar against their European cost bases."

In the UK, Moody's expects price pressure to remain high owing to changing consumer habits, and wage inflation to accelerate following the introduction of a compulsory national living wage from April 2016.

Another UK concern is margin pressure in the consumer durable and apparel sector, where companies are experiencing high competition between branded and private labels.

For the beverage industry, the emerging markets slowdown is predicted to dampen growth although, as for all sectors, euro weakness is a tailwind for the export-oriented. The ABInBev-SABMiller merger was not seen as likely to dramatically change the competitive landscape.

Diageo's rating was benefiting from an expectation of further improvements in metrics, while Coca-Cola HBC's outlook stabilised at the end of 2015 thanks to the success in weathering exposure to Russia.

Although Russia's economic crisis is hitting volumes in beverages, there is a potential opportunity for durables companies with local production facilities and solid market positions, "as they can gain market share from importers and weaker local competitors. High inflation could push consumer spending for consumer durables".