ANDA fireside chat postponed
Today, we were scheduled to host a fireside chat with Stryve Foods' management team, but we have to postpone it. We are looking to reschedule it for the very near future. So we will have a new date shortly.
Oatly short report (OTLY)
A report highlighting reasons to be short Oatly was published yesterday. Among other points, the report alleged: a discrepancy between sales and accounts receivable suggests revenue and gross profit overstatement, greenwashing the company’s environmental impact, the risk from higher oat prices, hiding members of management involvement in financial improprieties at previous firms, production problems, spiraling CAPEX, market share losses, and the conclusion that the company may never earn a profit.
Oatly responded by saying it rejects all claims and it stands behind all activities and financial reporting. We can provide our take on the claims with additional time. An example would be the spurious claim that “it has recklessly disregarded these costs by locating production facilities thousands of miles from its oat sources.” Oat milk by weight is largely water. Locating the production closer to demand incurring lower transportation costs. Oatly is not alone in producing close to demand rather than where the crop is grown. An argument is not strengthened by simply increasing the number of claims because it distracts from the most important.
We are not dismissing the short report. Instead, we are distilling it to the couple of claims that deserve more time researching. First, Oatly is not currently on our position monitor. Keeping it off the short side is our belief that Oatly has all the potential to be the next big global consumer brand. Keeping it off the long side is our chief concern that the valuation and growth targets leave the company little breathing room for unexpected execution issues. Second, the company’s revenue projections imply nearly full utilization for the foreseeable future. However, we have documented manufacturing problems at the new Utah plant and frequent product shortages, which suggest full utilization should not be a base case assumption. Finally, Oatly’s brand and marketing efforts should continue to drive demand beyond supply, benefiting competitors’ oat milk offerings. The beneficiary of the robust category demand is SunOpta.
For a replay of our Pre-IPO review of Oatly, CLICK HERE.
PPI surprises to the upside (KR)
Producer prices accelerated in June, leading to the largest annual increase in more than a decade. The headline PPI for June was up 7.3% YOY. The PPI for food manufacturing increased 11.8% YOY in June, accelerating from 3.4% in May. For much of 2020, the increase was modest due to the pandemic. The comparisons are easy (low) for the next six months, leading to elevated food manufacturing PPI for the rest of the year. As our macro team says, “By definition, CPI lags PPI as PPI includes the prices ‘from the first commercial transaction for many products and services – so a good leading indicator for CPI.” Numerous food companies have noted the inflationary pressures ahead. The headwind will be discussed thoroughly this earnings season, separating the companies that can mitigate it from those that plan to take price and hope for low elasticity.
Hard seltzer share shifts (SAM)
We are now past the July 4th peak for beer sales. The Labor Day weekend is the last big sales driver in the calendar remaining. That means retailers and distributors will be more careful about their orders and inventory levels of hard seltzer. Coors pulled its hard seltzer product after only achieving a 0.7% share. A shakeout of weaker brands seems likely, but most brands do not have the same discipline as Molson Coors. Will pricing hold while orders are throttled back?
Truly continues to gain share this year while White Claw continues to be the main share donor, as seen in the chart below. As sales trends slowed, bulls argued that Truly sales would reaccelerate against easy comparisons, but like they often do, the trend was stronger than the comparisons. So now bulls point to Truly’s share gains. Would you rather be losing share in a growing category or gaining share in a decelerating category? Boston Beer remains a Best Idea Short.
