Consumer staples offer growth despite slower U.S. demand

Consumer staples are drawing renewed investor attention as money rotates away from parts of the technology sector. Companies with broad international operations and exposure to emerging markets may be better positioned to navigate softer U.S. consumer spending.

BNN Bloomberg spoke with Filippo Falorni, director of U.S. beverages, household products and personal care lead analyst at Citi, about why he favours Colgate-Palmolive, Coca-Cola and Keurig Dr Pepper, citing global growth opportunities, pricing power and potential catalysts for earnings and valuation.

Key Takeaways

• Investor interest in consumer staples has increased during periods of weakness in AI and technology stocks.
• Companies with greater exposure to emerging markets may be better positioned than U.S.-focused peers as domestic consumer spending softens.
• Pricing power, innovation and premium products continue to support earnings growth for leading consumer brands.
• Lower oil prices could help improve margins by reducing input and transportation costs.
• A planned separation of Keurig Dr Pepper’s beverage and coffee businesses could unlock shareholder value in 2027.

Read the full transcript below:

LINDSAY: It’s time now for Hot Picks, and today we are zeroing in on three plays in the consumer products sector. For more on his top picks, I’m joined now by Filippo Falorni, director of U.S. beverages, household products and personal care lead analyst at Citi. Good morning. Thanks so much for joining us.

FILIPPO: Hi, Lindsay. Thanks for having me on.

LINDSAY: Before I get into your three top picks, I’m just curious, have you seen any trends recently in terms of investors rotating in or out of consumer staples?

FILIPPO: Yes, we’ve definitely seen a little bit more interest in the consumer staples sector. It’s definitely inversely correlated with the AI trade and the tech trade. So whenever you see periods in the market where there’s weakness in that part of the trade, consumer staples definitely get a little more interest. Also, the recent pullback in oil prices helps a lot of these companies from a cost standpoint and a margin standpoint as well.

LINDSAY: Okay, so let’s get into it then. Colgate is your first pick. Why do you like Colgate?

FILIPPO: Yeah, so Colgate is the most international of the companies that we cover, 75 per cent of sales outside the U.S., 45 per cent of sales in emerging markets, and that’s where we think most of the growth resides in a lot of these household product and personal care categories. Really, when you think about the per capita consumption opportunity that Colgate has in a lot of these markets, it’s still very significant. Also, they’re able to take more pricing on a consistent basis just because inflation is higher in those markets, so that gives them more power in terms of higher organic sales growth versus their peers. We’ve heard from a lot of their peers that the U.S. market is a little bit more challenged given the higher gas prices and the pressure on lower-income consumers, so we do think they are in a better position versus their peers from a geographic and category standpoint. Remember, oral care is 50 per cent of their business. That’s a good category with low private-label penetration and still a lot of per capita consumption opportunities in emerging markets. Lastly, I’ll mention from a cost standpoint, the company has assumed US$100 per barrel or US$110 per barrel in oil prices for the rest of the year. So the recent pullback also gives them flexibility on the margin line.

LINDSAY: Next up is The Coca-Cola Company. For you, this is a buy. Why is that?

FILIPPO: Look, Coca-Cola is also a very big multinational company. They’ve demonstrated over time that they have very strong volume growth globally. They have a dual strategy, I would say. In developed markets, where growth in carbonated soft drinks has been more challenging in recent years, they’ve been focusing on diversifying the portfolio. In the U.S., for example, they acquired Fairlife, which has been a phenomenal acquisition with a lot of growth in the ready-to-drink protein space with Core Power. They continue to have pretty solid market share performance and more price-mix-driven growth in their core Coca-Cola and carbonated soft drink business based on their price-mix strategy with smaller pack sizes that drive better mix. Then, in emerging markets, similar to Colgate, they also have significant per capita consumption opportunities and distribution opportunities. If you think about Latin America, Asia-Pacific, Africa and Eurasia, it’s a company that is growing at the upper end of peers, four to six per cent top-line growth very consistently over the last several years. From a margin and earnings standpoint, they’ve refranchised their bottling business, which is a lower-margin business. So now Coke is a structurally higher-margin company with gross margins in the high 60s and operating margins in the mid-30s. That’s above peers that are more in the 20s. Structurally, given the refranchising, they are a much higher-margin and much higher-return company. So we think that should be reflected even more in their valuation premium to peers.

LINDSAY: Okay, and then last up, Keurig Dr Pepper. What’s your investment case here? Why do you like this one?

FILIPPO: Yeah, Keurig Dr Pepper is an interesting one. About a year ago, they announced the acquisition of JDE Peet’s, which is the European coffee business, and they have a clear catalyst because they’ve announced that they’re going to separate the company into a beverage company and a coffee company. That separation is scheduled for early 2027, so we think that separation will provide a significant catalyst for the stock. You’re going to have two separate companies: a pure-play beverage company, which competes with Coke and Pepsi. It’s a much more U.S.-centric company on the beverage side, but they’ve shown over the years the ability to gain share with the Dr Pepper brand, which has been very successful both with the core brand and with a lot of the innovation they’ve done. They’ve also added other platforms like energy drinks and sports drinks on the beverage side that drive continued revenue growth. On the coffee side, you have a combination of the legacy Keurig coffee system in the U.S. and Canada, and then you’re adding essentially an international coffee portfolio with JDE Peet’s. The coffee side is a bit more challenging, but coffee prices have come down recently, so you have a margin recovery story on the coffee side, plus opportunities to integrate the two businesses and generate some revenue synergies as you bring international brands into the Keurig platform.

LINDSAY: I wonder then, just in our last minute or so, what are any kind of headwinds or challenges that you feel these companies might need to watch out for?

FILIPPO: Yeah, look, I mean, the consumer environment, as I said, in the U.S. remains pretty challenging. That’s why generally we prefer multinationals and companies that have more exposure to emerging markets. U.S. consumers have faced a lot of inflation over the last couple of years, and the recent rise in gas prices has definitely put pressure on lower-income consumers, so that’s something to watch this coming earnings season. Again, that’s one of the reasons for the preference for multinationals.

LINDSAY: Okay, we’re going to have to leave it there. Filippo Falorni, director of U.S. beverages, household products and personal care lead analyst at Citi. Really appreciate your time. Thanks for joining us.

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This BNN Bloomberg summary and transcript of the July 2, 2026 interview with Filippo Falorni are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.