Restaurants
Just Eat Takeaway
At the capital markets day, Just Eat Takeaway.com CEO Jitse Groen told investors that over time there will inevitably be consolidation in the "wider" U.S. on-demand delivery market, as various players combine to optimize the last mile, and Just Eat Takeaway.com management expects Grubhub to be involved in this consolidation when it comes and intends to do so from a position of strength. In an underwhelming presentation, the company guided a full-year EBITDA margin of -1% to -1.5% on a gross transaction value of $32B to $35B. GRUB is targeting gross transaction value growth in the "mid-teens" for 2022. Groen objected to suggestions he would consider selling or combining the whole of Grubhub's business, although he noted that the company would look at anything that makes Grubhub stronger. We continue to believe that Takeaway will be consolidated into another company.
Consumer Staples
Hard seltzer goes flat (SAM)
Boston Beer reported a loss of $4.76 per share in Q3 compared to consensus expectations of $4.76. Results included $7.73 per share of volume adjustment costs as the company recognized costs for overestimating complex seltzer demand. The $102.4M of direct costs accounted for inventory and obsolescence costs of $54.3M, contract termination costs for third-party production of $35.4M, and equipment impairment costs of $12.7M. The company also recognized severe seltzer slowdown indirect costs of $30.6M. That comprised absorption costs of $11.4M, materials sourcing and warehousing costs of $11.8M, and out-of-code returns of $5.4M, plus $2M of other costs. This was hard seltzer's "kitchen sink" quarter.
Management's revised outlook for 2021 EPS is $2 to $6 (including $7.73 of hard seltzer slowdown costs) compared to a consensus of $17.24. Depletions and shipments are expected to increase 18 to 22%. Management's preliminary outlook for 2022 is for depletions and shipments to grow between MSD% to LDD%. Management expects the hard seltzer category to be flat to up 10% in 2022. Pricing is expected to be between 3 to 6%. Gross margins are expected to be between 45 and 48% - in line with consensus expectations, but disappointing compared to 47% in 2020 that incurred significant inefficiencies.
The most important unknown is the growth or decline of hard seltzer in 2022. While the category has grown some 14% YTD, accounting for much of the growth in the overall beer category in off-premise channels, it has been near flat in Q3. The category has three more quarters of difficult comparisons to the anniversary, making it difficult to project what growth will be going forward. As we have seen for the past several years, no one has been able to project the growth rate for hard seltzer with any accuracy. Boston Beer remains on our shortlist. We see more risks to the downside for the hard seltzer category in 2022 than double-digit growth.
See our separate note for additional detail.
Seafood Strength (NOMD)
According to IRI, fresh seafood sales in the U.S. grew 9.6% to $7.1B for the year ended October 3. Volume grew 4.6%. Frozen seafood sales grew 7.5% to $7.2B, with volumes up 3%. Seafood in the grocery store has benefited from the pandemic driven mainly by consumers who often purchased seafood in restaurants switching to at-home meal preparation. The pandemic was behind more people becoming comfortable preparing seafood at home. The household penetration of families buying fresh seafood reached 50.7%, up 3.8% points YOY. Frozen seafood penetration increased 5.6%, pointing to 72.9%. In 2020 seafood department revenues grew 28.4% compared to 18.7% growth for the meat department and 11.3% for the produce department. Nomad Foods is the largest frozen seafood company in Western Europe, where similar trends, but to a lesser extent, have been seen.
Investing in oat science (OTLY)
Oatly announced that it plans to open a new research and innovation center at Lund University in Sweden to explore oats' potential further. Oatly also plans to hire 30 additional scientists in Lund to study oats in greater detail from various perspectives, including biochemistry, biophysics, microstructure, nutritional traits, and refinement. Oatly will undoubtedly be a leader of research in oats, but we would prioritize hiring more people in manufacturing. Unfortunately, we could not reach the Quaker Oats Center of Excellence for comment (one, but we could not reach the Center directly).
