Beer Wholesalers’ Index Indicates Trouble for Hard Seltzer (SAM)
The National Beer Wholesalers Association’s monthly Beer Purchasers’ Index was 51 in November, down slightly from October. The BPI is a diffusion index in which over 50 represents expansion and below 50 represents contraction. The FMB/hard seltzer index fell to 31 in November from 42 in October; last year, it was 87. Imports had the highest reading of all beer category segments at 68, down one from October. Premium lights were 54, up two from October. Craft beer improved 4 points to 47 but was still down for the third month in a row. Below premium, beer had the lowest reading of 29. The at-risk inventory reading was below 50 for all segments except FMB/seltzer, which the NBWA said was due to supply constraints.
Better FQ1 results, but visibility is still challenged (CPB)
Campbell Soup reported FQ1 EPS of $.89, $.08 above consensus expectations due to better margins and a lower tax rate. Organic net sales decreased 4% YOY but were up 5% compared to two years ago. Management said consumption was up 2% YOY and up 9% compared to two years ago. The Meals & Beverage division organic net sales decreased 6% YOY with consumption flat. The Snacks division organic net sales decreased 1% YOY and grew 4% compared to two years ago. Management attributed the decline to labor-related supply constraints. Consumption increased 5% YOY and 9% on a two-year basis. Management said Snack Factory Pretzel gained 2.5 share points, Kettle brand potato chips gained 1 point, and Cape Cod potato chips gained 2.6 points.
Gross margins contracted 200bps YOY but were 80bps better than expectations. Management cited supply chain pressures from labor constraints and transportation capacity. The mix had a 70bps negative impact for headwinds, and inflation had a 470bps negative impact with input prices up 6%. For tailwinds, supply chain productivity had a positive 120bps impact, pricing had a 190bps positive impact, and cost savings had a positive 30bps impact. Management said they are now over 85% covered on ingredient and packaging spending. Core inflation is expected to be up HSD% for the year with a larger impact in the 2H. Marketing and selling expenses decreased 18% YOY or 130bps lower as a percentage of sales due to lower advertising and promotion expenses. EBIT margins contracted 210bps, down slightly from two years ago. The Meals & Beverages division margins contracted 260bps while the Snacks division margins contracted 60bps
Management reaffirmed EPS guidance of $2.75-2.85 and revenue guidance of -2% to flat for the year. The second round of price increases will be effective in January and on retailers’ shelves by the end of FQ2. FQ2 top-line results are expected to improve sequentially, but margins are expected to worsen. The Q1 results were not as bad as feared. However, Q2 margin trends will worsen while the top line improves sequentially but remains negative. Inflationary headwinds will continue to build in the 2H of the year, clouding EPS visibility. The company is planning further +MSD% price increases, but that adds unforeseen risks, and marketing spend can only be cut for so long before its impact is felt. Campbell Soup remains on our short list.
Return to the office (KR)
According to Kastle Office Systems, the average office occupancy of the top ten cities in the U.S. was 40.6% for the week ended December 1. Door swipes rebounded sharply from the holiday-shortened week improving 810bps sequentially, as seen in the chart below. Occupancy levels were the highest since the pandemic. The Texas cities had the largest improvement and the highest overall occupancy levels. The California cities which have the lowest occupancy levels were still above the week prior to Thanksgiving week.
The return to the office will determine how permanent the food consumption shift is from on-premise to off-premise. The return so far has been at a modest pace but improving at 3% points each month in recent months. Travel demand for the downtown area of cities has seen significant reductions ranging from San Francisco, Detroit, and Washington D.C. down 49%, 41%, and 38% respectively to pre-pandemic levels. At the other end of the spectrum, the cities most recovered are San Antonio, Tampa, and Phoenix down 5%, 6%, and 7%. Companies including Ford and Google have delayed required return to office dates recently. This week the parent company of Facebook said it will fully reopen offices at the end of January while allowing workers the ability to delay it until June and Dell Technologies said offices will reopen after Jan. 4.
