KUALA LUMPUR, March 25 -- Moody's analysts have lowered aggregate operating profit forecasts for the global consumer packaged goods sector to 1.5 per cent in 2020 and 4.0 per cent in 2021 from previous growth forecasts of 5.1 per cent and 4.2 per cent, respectively.
The revision of the profit growth forecasts was due to expectations that the COVID-19 outbreak would reduce consumer spending, Moody's said in a statement.
It, however, said that the outlook for the global consumer packaged goods sector remains stable.
"Our projections assume that the brunt of the outbreak's impact will be felt in the first half of 2020, with growth improving in the second half of the year and into 2021.
"However, we will consider lowering our profit forecast again if efforts to contain the outbreak stumble or if consumer sentiment continues to weaken,” it added.
Moody's analysts said the potential for supply chain disruptions would remain a risk even for products whose consumer demand is strong.
"The effects of the coronavirus will have a divergent impact on different industry sub-sectors, with companies that rely heavily on more discretionary product offerings or more disrupted distribution channels, such as fragrances and travel retail, more vulnerable to declining demand, versus those that generate sales from daily essentials, such as laundry detergent, cleaners, and toilet paper, faring better,” it said.
Moody's said it expects sales at beauty companies to decline in the first half of 2020, before gradually improving in the second half of the year and returning to growth in 2021, with the drop-off in sales reflecting declining demand in Asia, lower sales for travel retail, and department store closures in the US and European markets.
Meanwhile, prices for key commodities, such as oil and resin, have fallen sharply and are at historic lows, and reduced commodity costs will help to mitigate the drag on margins for products with weaker demand, boosting margins for products with strong demand.
"Continued cost-cutting will help stabilise earnings, with such initiatives remaining one of the drivers of profit growth in the packaged goods sector.
"We would consider changing the outlook to positive if we expect operating profit growth to exceed 4.0 per cent in the coming 12-18 months, with likely drivers to include new innovations to spur growth in what are largely mature categories," it added.
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