Cleaner Living cleans up in July

Cleaner Living cleans up in July

July was a bit of a roller coaster ride for the domestic stock market, as it grappled with the ongoing U.S.-China trade war, economic data that points to a slowing global economy and the expected interest-rate cut by the Federal Reserve at the end of the month. For the month in full, each of the major stock market indexes finished higher month-over-month, adding to their gains for the year, but exited the month below their July highs. The same was true for the Tematica Research Cleaner Living Index, which rose 1.2% in July, continuing its sharp June rebound. 

Driving the July performance for the Cleaner Living Index were shares of Beyond Meat (BYND) and Primo Water Corp. (PRMW), both of which climbed more than 20% during the month. Those moves reflect the continued expansion of Beyond Meat’s meatless protein products, a growing number of partnerships and expanding consumer awareness of water quality. That last topic was a key conversation point in our recent Thematic Signals podcast conversation with Dr. Roy Speiser. The index’s July performance also benefitted from double-digit gains at Simply Good Foods (SMPL), the company that leverages the Atkins brand in the healthy snack market, Trex (TREX) and Fresh del Monte Produce (FDP). 

Offsetting those gains were continued declines at Tenneco Inc. (TEN). The company’s clean air solutions have been impacted by the combination of a slowing global economy, a weakening of the auto market and on-going US-China trade concerns. Other notable decliners with the index for the month of July included Sprouts Farmers Markets (SAFM) and Renewable Energy Group (REGI). Sprouts continues to confront the traditional grocery chains expanding their natural, organic and healthier for you product offerings. Cleaner fuel company Renewable Energy Group on the other hand is facing falling oil prices, making competing solutions increasingly affordable. 

As we are starting to wind down the 2019 June-quarter earnings season, coming into this week more than three-quarters of the S&P 500 group of companies had reported those quarterly figures. Tallying those results, we’ve seen earnings-per-share expectations for the current quarter fall. The result is that full year 2019 earnings per share expectations for that cohort of 500 companies has risen just 2.7%, compared to 2018. Before too long, investors will begin to focus on 2020 growth prospects, and current expectations have the S&P 500 group of companies growing their collective earnings by 10.8% year over year in 2020. 

By comparison, the Cleaner Living index constituent base is slated to grow its collective earnings by nearly 30% in 2020. That’s significantly faster than the expected year over year EPS growth of 6%-12% in 2020 for the consumer discretionary, consumer staple and utility segments tallied by FactSet. Arguably the difference in those EPS growth rates reflects the accelerating shift by consumers toward natural, organic and healthier for you solutions that speaks to the structural shift captured by Tematica’s Cleaner Living investment theme and index. 

While we very much like the overall vector and velocity of the Cleaner Living constituent base and the collective earnings-per-share growth to be had in the coming quarters, we recognize at least in the near-term the overall market and subsequently the Cleaner Living index will likely be impacted by U.S.-China trade developments, the speed of the global economy and changes in monetary policy from the world’s major central banks.

Signals for Tematica’s Cleaner Living investment theme & the Cleaner Living Index


Performance for the Tematica Research Cleaner Living Index (CLNR) is available through Bloomberg, Reuters, FactSet, and other data aggregators, as well as the Tematica Research website. The index is currenty available for licensing for the use in a variety of exchange traded products or as a data overlay in portfolio screening and management. The Tematica Research Cleaner Living Index is being calculated by Indxx.

Nestlé takes its coffee upscale with Blue Bottle Coffee 

Nestlé takes its coffee upscale with Blue Bottle Coffee 

Over the last several quarters, we’ve witnessed larger breweries scoop up smaller, craft brewers with the goal of not only buying market share but also tapping into products that consumers are favoring. We are starting to see that happen in Big Food with Danone acquiring White Wave and now Nestle taking an interest in premium coffee company Blue Bottle Coffee. Several of team Tematica have sampled Blue Bottle’s hot and cold coffees, and in our view, they are a clear-cut example of an Affordable Luxury. Just so we’re all on the same page, we define an Affordable Luxury as a premium product or service that makes consumers feel like they are splurging, but it’s priced so that splurge can be fit into their weekly budget. A slice of heaven that doesn’t break the bank.

There’s a very big difference between a cup of lukewarm Nescafé instant coffee and a cup of freshly roasted pour-over coffee, yet the same parent company will be able to bring give you both. Nestlé has reportedly paid around $500 million for 68% of the Brooklyn-based roastery Blue Bottle.

Acquiring millennials, er, coffee brandsNestlé will have the option to acquire the remaining 32% of the company if Blue Bottle reaches certain unspecified goals, and says that the brand will be allowed to function independently. The company’s founder, a former professional clarinet player who turned his coffee-roasting hobby into a worldwide business, will stay on, as will the current CEO.

In an interview with the Financial Times, which broke the story, Nestlé marketing director Patrice Bula was pretty honest about why it acquired the company: It wants expertise in what’s currently considered premium coffee, and it wants to be part of a market that’s actually growing among millennial customers.

Source: Nestlé Pays $500 Million For 68% Of Blue Bottle Coffee – Consumerist

Pet Food is a Growing Food with Integrity Market

Pet Food is a Growing Food with Integrity Market

Our Foods with Integrity investing theme is expanding to include more of our loved ones. That’s right it’s moving past family and friends to include our pets as the food with feed them goes all-natural, grain free and includes vegetables and fruits. Just like with people, these good for Rover products are growing faster than mainstream products;

“Just like people spend more money on their own good nutrition, they also want to do this for their pets,” Nestlé Chief Executive Mark Schneider said in February.Pet owners in developed markets are cultivating stronger emotional bonds with their dogs and cats, motivated by later marriages, smaller families and elevated divorce rates, according to Euromonitor.

 

In 2016, the U.S.’s 84.6 million pet-owning households spent $28.2 billion on pet food, up 23% from a year earlier, according to the American Pet Products Association. That translates into $333 spent per household last year.

Source: Beef Stroganoff for Your Dog? Pet Food Goes Upscale – WSJ

L’Oréal buys Valeant brands to improve its Fountain of Youth positioning

Several of our investment themes have tailwinds that can be polar opposites, while others are complimentary like our Aging of the Population and Fountain of Youth themes. As more people age, more of them try to fight the effects of aging and look younger. That’s been a boon for skin-care products and unsurprisinlgy they’ve been growing faster than the overall personal care products long dominated by Proctor & Gamble, Colgate Palmolive and Church & Dwight. Growth attracts buyers and that is what we have with L’Oréal buying skin-care brands from Valeant Pharmaceuticals.

L’Oréal SA plans to buy CeraVe and two other skin-care brands from Valeant Pharmaceuticals Inc. for $1.3 billion, expanding the French cosmetics firm’s U.S. presence and deepening its portfolio in a product segment that has become the beauty industry’s largest.

Companies across multiple industries—beauty, consumer goods and pharmaceuticals—are battling to stake a claim in the skin-care business, which is highly coveted because of its crossover appeal as both a medical and beauty product. In 2015, Unilever purchased four skin-care brands, including Ren and Murad, while Nestlé last year formed a joint venture with the maker of Proactiv, one of the world’s top-selling acne treatments.

For nearly a decade, skin care has outgrown the wider beauty and personal-care market, according to data tracker Euromonitor International. Skin care is now the beauty industry’s largest category, accounting for a quarter of the market, but growth has begun to cool in recent years.

Source: L’Oréal Looks to Gain U.S. Share by Buying Valeant Brands – WSJ