But 2025 remains on track (APPH)
AppHarvest reported revenue of $3.1M for Q2, an increase of $0.8M from Q1, but less than half of the implied guidance for the quarter. AppHarvest produced 8.6 million pounds of tomatoes, up 126% from 3.8 million pounds in Q1 as production ramped up to the full 60 acres in Q2. The price per pound for tomatoes fell 40% to $.36 from $.61 sequentially. Realized price was impacted by quality. Adjusted EBITDA was a loss of $22.6M compared to a $1.6M loss last year.
Management slashed expectations for 2021 but maintained their outlook for 2025. (It was a first for us to see current year expectations slashed, but plans to remain the same for four years.) Management lowered financial expectations for the remainder of the year to reflect lower price projections and higher distribution costs. Management now expects sales for the year to be between $7-9M, down from $20-25M. The revised revenue guidance implies the 2H to be below the 1H, despite Q1 not having a full 13 weeks of sales. The higher end of guidance implies Q3 and Q4 combined will only slightly exceed Q2 despite one of the benefits of an indoor grow facility's absence of growing seasons. The adjusted EBITDA outlook for 2021 was revised to a $70-75M loss from a $48-52M loss. The company continues to expect to have four production facilities by the end of next year. Capex guidance was raised to $185-205M from $145-155M.
We are moving AppHarvest lower on our shortlist because the rate of change will likely be less bad in Q3. It is hard to see worsening trends since guidance implies results are down by half again. We remain short because the company is still far from establishing a “proof of concept” in the actual results. Yet, the company is accelerating its expansion to four facilities and destroying further capital. The biggest positive for the company is that it continues to demonstrate relatively inexpensive access to capital.
For our full thoughts on the quarter, please see our separate note.
New expansion plans announced (STKL)
SunOpta reported a $0.9M operating loss in Q2 in line with expectations. Plant-based revenue grew 21.4%, accelerating from 11.9% sequentially. Oat milk represented half the growth in Q2, similar to Q1. For Q2, the plant-based milk category grew 3.7% in the retail channel driven by oat milk. Oat milk still had robust growth despite the pandemic comparisons in 2020, but the other plant-based categories were down.
As the retail channel slowed, the foodservice channel recovered. Starbucks is SunOpta’s largest customer. In calendar Q2, Starbuck's growth in the Americas was 92.5% compared to 7.7% in calendar Q1. SunOpta announced that it was named as a secondary supplier of oat milk by Starbucks. Oatly’s supply challenges are seen to continue at least until 2022. SunOpta will supply certain Starbucks regions with oat milk. Customers can often order oat milk at a Starbucks café, but it is not an option currently on the app – reflecting the tight supply. Gross margins in the division contracted 30bps, from 110bps of depreciation expense and 40bps from higher transportation costs.
Fruit-based revenue decreased 1.9% in the quarter. The fruit-based business is mostly private label which passes through pricing on a lag. Private label business is also exposed to higher transportation costs while co-manufacturing customers generally pick up the freight. The retail frozen fruit category was down 1.7% in the quarter as the pandemic boost was lapped. Gross margins in the division expanded 10bps. Management made several changes to the sourcing and processing of the fruit, but strawberry prices up by a third, and a stronger Peso offset much of the structural improvements to the business in the quarter.
Management guided the 2H revenue growth rate to be similar in both divisions as it was in Q2. EBITDA margins are expected to remain in the high-teens% in plant-based and similar YOY in fruit-based. The company also formally announced a new plant in Texas that would round out its regional network. The construction would be expected to be completed late in 2022, driving revenue growth in 2023 and years beyond. SunOpta remains the best idea long. The company remains well-positioned to gain from the secular growth in plant-based milk. Oat milk is still in the early innings; we think it will be the leader in plant-based milk in a few years. The market continues to miss SunOpta’s multi-year visibility in sales and margins.
For our full thoughts on the quarter, please see our separate note.
Food CPI accelerates in July (KR)
The headline CPI was 5.4% YOY in July, up 0.5% from June. The CPI for food at home was 2.6% YOY in July, accelerating 170bps from June. The CPI for food and beverages in July was 3.4%, accelerating 100bps from June. The inflation rate for food has been decelerating for the past year until June. July’s figures confirm a reversal in trend, as seen in the chart below.
The CPI for meats, poultry, fish, and eggs inflation was 5.9% YOY, accelerating from 0.7% in June. Dairy and related products inflation was 1.8%, accelerating from 0.8% in June. Alcoholic beverages inflation was 2.4% YOY in July, up from 1.9% in June. The comparisons in the future are relatively steady so that they will have less of an impact. Many CPG companies have stated their intention to raise prices in the 2H of the year. Therefore, further acceleration in food CPI should be expected.
