“I think we just are in unchartered territory. I’ve been in this business for a long time, as you know, and I’ve never seen aluminum where it’s at right now.” - Monster Energy Co-CEO Hilton Schlosberg discussing aluminum can prices and shortages (8/5/21).
Organic growth debate (NOMD)
Nomad Foods reported an FQ1 EPS of €.40 vs. consensus of €.32, up 18% from last year. The upside to our estimates was in better gross margins and lower operating expenses. Organic revenue decreased 4.5% as it lapped 12.3% growth last year, with volume down 4.4% and price down 0.1%. Gross margins expanded 50bps driven by productivity improvements and Fx. Despite industry cost pressures, the company was able to drive higher gross margins without price increases. Operating expenses decreased 3% YOY. Adjusted EBITDA margins expanded 90bps.
Management reiterated EPS guidance for €1.50-1.55 ($1.79-1.85). Organic revenue is still expected to grow 1-2% for the year. The organic growth aspect of management’s guidance received the majority of questions on the conference call. Organic revenue growth for the first half of the year was -1.2%. The POS data was weaker than that, but the data contributors only represent half of the company’s sales. Management expects to achieve organic growth through improved capacity, recovery in non-branded and international, and foodservice continuing to rebound (up 40% in Q2). As a result, the implied acceleration in the 2H is greater than the current two-year stack rate. The company’s organic growth track record has been impressive, and a source of pride for management, but a small decline for 1-2 Qs as it laps the pandemic does not change our view.
The Fortenova acquisition, which is expected to close in Q3, is guided to be HSD% accretive to EPS in the first year. Annualized revenue and EPS for the combined companies would be $3.5B and $2.00 this year. Fortenova has a sizable ice cream business causing the contribution to be back half-loaded for the first year. The company also approved a new $500M share repurchase authorization. Nomad Foods is the best idea long. Shares are attractively valued at 13.5x 2021 run rate EPS. If the company can meet or exceed EPS guidance (we are in the latter camp), but organic revenue was flat to down, it would seem unlikely shares trade below 12x EPS with organic revenue and total revenue growth accelerating.
Truckload volumes make a new high in June (KR)
Truckload freight volumes reached new highs in June, as seen in the chart below. As a result, spot and contract rates remained in record territory according to DAT Freight & Analytics, operator of the largest truckload freight marketplace in North America. DAT’s freight volume index reached 237 in June, up 11% from May. The baseline of 100 reflects freight volume in January 2015.
The national average rate for van loads on DAT’s network was $2.68 per mile in June, down one cent from the all-time high in May. The national average spot rate for refrigerated freight fell one cent to $3.10 per mile compared to May. However, the spot rate for flatbed increased three cents to $3.15 from May. The average contracted rate for a van was $2.73 per mile, up to six cents from May, while contracted reefer rates increased three cents and flatbed rates increased seven cents.
The number of available tracks on DAT’s network increased 13.2% from May, indicating workers returning to the industry. The transportation industry added 24,500 new jobs in June. The national average van ratio of loads to trucks fell from 6.1 in May to 5.6 in June. Usually 12 to 15% of all truckload volume moves on the spot market, but entering July that was closer to 25% due to the tightness of the market. Higher trucking costs are a cost pressure for nearly everyone in Consumer Staples, but it may stop going up with additional supply. Last night Monster Beverage (MNST) said, “We are continuing to experience freight inefficiencies as well as significant increases in domestic and international freight costs.”
Grocery wine expansions (VWE)
Two Midwestern grocers announced plans to expand their wine and spirits offerings. First, Hy-Vee released plans for a new retail offering called “Wall to Wall Wine and Spirits.” The plan features a wide range of wine, craft beer, and liquor at multiple price points. In addition, the stores will also offer a range of specialty foods, high-end barware, and related accessories. Hy-Vee currently operates 280 stores in eight Midwestern states.
Schnuck Markets announced the launch of its wine club. The Schnucks Wine Club would give members an everyday discount of 15% off, a newsletter, and cooking school classes for an annual membership of $24.99. Schnuck operates 110 supermarkets in four Midwestern states.
Wine sales grew 10.5% by volume in the multi-outlet retail channel in 2020, benefiting from the shift to at-home consumption. Roughly one-third of Vintage Wine Estates sales come from the B2B channel. The company is one of the leading suppliers of controlled wine brands in the retail channel.
