Philippine Consumer Stocks May Disappoint Market With 1Q Results

(Bloomberg) -- As quarterly earnings start rolling in, it may be wise for investors to be wary of Philippine consumer stocks as they may fall short of an expected earnings growth recovery that would come from slowing inflation and an election boost to household spending.

While inflation cooled for a fifth straight month in March, politicians campaigning for mid-term May 13 elections have opened their wallets to woo voters and consumer stocks have clocked an 8.4 percent year-to-date gain, beating the main Philippine Stock Exchange Index's 6.7 percent advance through Friday's close. The rally may take a breather though.

“Investors could face some disappointment as the expected strong earnings growth may not materialize," says Rachelle Cruz, an analyst at AP Securities Inc in Manila. “While we'll see a margin recovery, net income growth won't be as spectacular as expected because sales growth was muted as the impact of high inflation on consumers was still felt in January and February."

A couple of the nation's biggest consumer names warned earlier in April that it would take time for household spending to recover and gain traction from the effect of the surge in inflation to a nine-year high in September. Additionally, a delay in the implementation of the government budget may have shaved between 0.7 percent to 0.9 percentage point from GDP growth in the first quarter.

Jollibee Foods Corp., the nation's biggest restaurant operator, sees its sales and profit in the first and second quarters to be “not as strong." Puregold Price Club Inc., among the country's biggest retailers, has tipped this year's same-store sales growth will range between 3 percent and 5 percent compared with 5.8 percent in 2018. Jollibee and Puregold are expected to release earnings by the middle of May.

Universal Robina Corp., the nation's largest snack-food maker and bottler of iced tea, reported Tuesday that first-quarter profit rose 2 percent from a year earlier after sales increased 7 percent.

Max's Group Inc., which operates a fried chicken restaurant, and San Miguel Food and Beverage Inc., owner of the largest Philippine brewer and most popular hot-dog, have each rallied at least 40 percent this year, leading gains among the nation's consumer stocks. The group's laggards include Pepsi-Cola Products Philippines Inc, Philippine Seven Corp. and tuna canner Alliance Select Foods International Inc, which each slumped at least 2 percent.

“The gains we have seen so far in consumer stocks are due to company-specific catalysts," says Cruz. “The broader theme of falling inflation and election spending are yet to be reflected. Hopefully, this theme will start appearing when second-quarter earnings are out."

To contact the reporter on this story: Ian Sayson in Manila at isayson@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Margo Towie, Cecilia Yap

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