Consumer goods giants see today’s "challenging business environment" as a prime opportunity to increase market share. With rising capital expenditure and debt levels, how do the industry’s treasury metrics measure up? Let's find out.
YoY Growth Reported in Sales Revenue
YoY Growth Reported in CapEx
of Total Debt is Long-term Debt
Total Debt reported in 2023, on average
Consumer goods are products purchased by individuals and households, not by manufacturers or industries [1]. This category includes food, clothing, electronics, automobiles, and beverages.
The Consumer Goods Industry has a market volume of $2.8Tn and performance in this industry is directly influenced by consumer behavior[2].
Consider some major events between 2019 and 2024—the pandemic, multiple armed conflicts, supply chain challenges, and high inflation—all impacted the US economy, disrupting consumer behavior vis-a-vis their spending habits[3].
Companies, in 2024, are spending billions in marketing, product R&D, and tech to strengthen their market position and grab the biggest slice of the pie.
In this article, we will analyze the top 10 consumer goods companies based on their revenue in 2023[4] and their financial data[5], focusing on key treasury metrics like cash flow, debt, liquidity, and solvency ratios which will help us provide insights into the spending habits of the industry and the companies belonging to the sector.
Let’s study consumer behavior first!
Understanding consumer behavior is key to understanding the consumer goods industry.
As an example, take the COVID-19 pandemic. We witnessed multiple lockdowns, which were followed by panic buying. Can you guess how consumer preferences would have changed, given that we were uncertain about the duration of our stay at home?
Louis Vuitton store in the Omotesando district of Tokyo, Japan
Consumers quickly shifted their preferences from luxury products and services to everyday commodities like toilet paper, toothbrushes, and packaged food.
According to Deloitte[2] in 2023, with the pandemic perceived as being over, consumers shifted back and spent more on services like Netflix and Hulu subscriptions, cutting back on regular, everyday goods.
But, multiple armed conflicts, disrupted supply chains, and high inflation are affecting spending sentiments greatly in the United States.
According to McKinsey[3] in 2024, consumer optimism is falling while economic pessimism is growing. This is fueled by concerns over inflation, the depletion of personal savings, and perceived weakness in the labor market.
This impacts a company’s Free Cash Flow (FCF), which is a treasury metric that helps plan for future needs and ensures a company has enough cash left after the company pays for its Operating Expenses (OpEx) and Capital Expenditure (CapEx).
Also Read: How a Subscription Price Cut Boosted Netflix’s Free Cash Flow? (Link)
In 2023, the US’ Consumer Goods industry enjoyed $6B in Free Cash Flow (FCF). Procter & Gamble (P&G) leads with $13.83B in FCF, followed by Louis Vuitton at $11.72B, and Nestlé at $9.70B.
How did the industry perform, overall, from 2019 to 2023?
Research shows a decrease in personal spending[3], but our data suggests a YoY increase in the Cash Burn Rate.
This means that even though consumers are generally tightening their belts, the consumer goods industry is still spending more on its operations and investments in hopes of gaining more market share and profits in the future.
According to Deloitte[2], C-suite leaders are viewing this “challenging business environment as an opportunity to increase market share”. Their focus is on:
Now, let’s take a closer look at the industry’s debt trends.
Also Read: $30Bn Worth HubSpot is Facing Short-term Liquidity Issues. Will Google Acquire? (Link)
In 2023, the Consumer Goods Industry had a combined total debt of $34B. Of this, $29B is long-term debt (almost 84% of the total debt) and $5B is short-term debt.
Companies with the most debt: Anheuser-Busch leads with $79.23B, followed by JBS S.A. with $77.63B, and Nestlé with $46.65B.
Let’s double-click on the data:
84% of the Total Debt is Long-term Debt—growing 6.25% annually. Alternatively, the annual growth rate in Short-term Debt is relatively lower at 0.58%.
Why is long-term debt preferred over short-term debt by the consumer goods industry?
The consumer goods industry uses this borrowed cash to finance expansion into emerging markets or to fund their capital expenditure. With the benefit of delayed repayment, long-term debt helps reduce current liabilities, which include short-term debt and the current portion of the long-term debt.
This spending mainly occurs in two areas: marketing activities and investments to expand into new or emerging markets:
Our analysis shows that consumer goods companies leverage long-term debt to finance their growth. But can they repay these liabilities? Let’s examine the industry’s Solvency and Liquidity Ratios.
Also Read: Mastercard’s Debt Strategy: A Threat to Visa’s Cash Supremacy? (Link)
The industry’s Current Ratio in 2023 was 0.90. That means, for every $100 in Current Liabilities, there are $90 worth of Current Assets.
The industry’s Debt-to-Equity Ratio (D/E Ratio) in 2023 was 1.79. That means, for every $100 in Total Liabilities, there is $179 worth of Shareholder Equity.
The industry’s D/E Ratio is healthy, but its Current Ratio is below the ideal value of “1”.
This can be due to multiple reasons:
Also Read: The Treasurer of Tomorrow: 83% Seek Visibility, 86% Embrace APIs (Link)
Despite numerous challenges faced by the consumer goods industry, including economic turbulence, high inflation, and disrupted supply chains, the industry’s fundamentals remain robust.
With a strategic focus on long-term debt to finance growth and expansion into emerging markets, there is a confident optimism about the future.
Moreover, companies are delivering innovative products and memorable marketing campaigns to capture market share and drive growth. Investments in tech and prioritizing consumer engagement are all decisive steps in the right direction.
Overall, the consumer goods industry is poised to capitalize on emerging opportunities despite the headwinds.
Source Links:
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