Global Consumer Chemicals: COVID-19 and the flux in category shifts
The Nielsen retail data is showing such volatility in key categories that 2Q20 looks like a fascinating quarter in which business models will see vastly different outcomes on organic growth and likely contrast with the general robust 1Q20 trends. Overall we see downside risk to consensus organic sales for 2Q for global Consumer Chemicals given the evidence from Nielsen of an unwind in "pantry loading" in food & laundry detergents and the ongoing pressure in personal care/cosmetics (and even deodorants) from social distancing. April retail data from Nielsen shows an extreme range in EU category volumes of -48% YoY (cosmetics) to +28% (household cleaners) which will make for significant forecasting errors.
Consider also the medium-term shifts that are possible (if not certain)
We already set out preliminary thoughts around the medium-term potential for change in category trends as a consequence of COVID-19 (Report) and re-emphasise: 1) risks from a prolonged downturn in cosmetics, fine fragrances, sun care products and beer volumes (enzymes) due to an extended period of social distancing; 2) upside potential in vitamins and supplements from greater consumer expenditure on health products. This report details the category exposures of each company.
The crisis could see an acceleration in bolt-on acquisition growth
Given the macro environment we could well see the more fragmented areas of Flavours and Fragrances, Personal Care and Food/Petfood Ingredients consolidate at a rapid pace. Smaller companies may be forced to sell under pressure of weaker balance sheets.