Investing.com — Barclays outlined its three preferred picks in the European consumer goods and food sector going into the first quarter earnings season.
Barclays warned of weak earnings across the board, especially as the U.S.-Israel war on Iran presented a potential inflation shock.
Still, the brokerage said it preferred companies which could better defend their margins through another round of price increases while maintaining volume growth.
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Barclays retains L’Oréal as its top sector pick, arguing headline Q1 weakness masks a structurally strong growth story. The bank forecasts Q1 organic sales growth of 3.5%, with the shortfall from prior estimates attributed almost entirely to SAP system phasing in China rather than underlying demand deterioration. Adjusting for the IT-related pull-forward, true underlying growth is estimated at around 5.7%. North Asia is the key drag, with Barclays seeing a continued decline in luxury. This phasing headwind is expected to mechanically reverse in Q2, setting up what Barclays describes as a markedly stronger second quarter. Haircare and fragrance remain the standout full-year growth engines, while skincare recovery is the key execution challenge.
Barclays describes Danone as one of the more defensive positions in European staples, forecasting Q1 organic growth of 3.0%, split equally between volume and price. The primary near-term overhang is the infant formula recall, guided to shave 50 to 100 basis points from net sales through temporary shelf disruption. Barclays assumes the top end of that range but notes recall-related newsflow has quieted recently. Scanner data for infant formula in Europe remains weak, keeping brand health of Aptamil firmly in focus. North America is expected to stay soft through Q1 as coffee creamer weakness persists, but a meaningful recovery is anticipated from Q2 as difficult shelf reset comparisons are lapped. China specialised nutrition is characterised as resilient, with no recall spillover observed. The proposed Huel acquisition is viewed as strategically sound.
Barclays said Unilever’s Q1 organic growth is forecast at 3.4%, slightly below consensus, as the bank flagged a US growth air pocket from Liquid IV and continued softness in Europe. Emerging market recovery faces greater uncertainty given Asian energy concerns, though Barclays holds its full-year OSG estimate at 4.0%. The more significant medium-term narrative centres on portfolio transformation. A separation of the Foods business is described as more likely than not, with McCormick’s approach having materially shifted the strategic calculus.
Unilever reported fourth-quarter revenue that fell short of forecasts. The company also recently held discussions with Kraft Heinz about a potential merger of their food brands, according to reports.
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