CPB highlights snacks growth prospects (UTZ)
Campbell Soup held its investor day yesterday. Management reaffirmed that the Snacks division will continue to be the company’s growth engine. Management’s goal for the Snacks division’s operating margin is 17% by 2025, representing 400bps of expansion. Management sees the $150B+ snacking category growing 3-4% over the next year, between the rate of growth during the pandemic of 4.4% and 2% before the pandemic. Snacks considered as “true indulgence” (potato chips, cookies) have had a two-year CAGR of 10% while “permissible indulgence” (pretzels, goldfish) has been growing at 4%. The company’s roadmap for expanding the Snack division’s operating margins is largely driven through pricing initiatives and manufacturing/distribution initiatives.
The question for Campbell Soup is how much of the margin gap in snacks to the sector leaders is structural, how much is related to COVID-19 and current inflationary pressures, and how much can be reengineered. Utz Brands has several of the same initiatives as Campbell Soup’s snack division for expanding distribution, accelerating innovation, and expanding margins. However, Utz Brands is a pure-play snacks company while Campbell Soup’s Meals & Beverages division competes in center of store categories with volume declines and is more than half its sales. Utz Brands also has a proven track record of creating value through accretive acquisitions. Utz Brands is facing near-term headwinds from higher transportation and commodity costs. The higher costs have not abated, but key competitors Campbell Soup and Frito Lay (PEP) have committed to raising prices improving the outlook for 2022 compared to 2021.
Return to the office (KR)
According to Kastle Office Systems, the average office occupancy of the top ten cities in the U.S. was 39.8% for the week ended December 8. Door swipes ticked down 80bps from the prior week, as seen in the chart below. Occupancy levels were still the second-highest since the pandemic. The Texas cities had the largest decrease week over week, but the highest overall occupancy levels.
According to research from Skynova, a provider of invoicing software for small businesses, fewer workers eat at restaurants while working from home. 49% of workers made lunch while working remotely while 42% utilized delivery, 41% ate leftovers, 38% snack, and 30% dine out. 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.
Sour grapes (VINE)
Fresh Vines Wine went public yesterday and fell 30% on its first day of trading. The celebrity-founded wine brand sold 2.2 million shares. Actresses Nina Dobrev and Julianne Hough co-founded the company after seeking a low-carb, low-calorie wine option. The company had revenue of $1M in the first nine months of 2021. The private equity firm Nechio & Novak of the company’s Executive Chairman and President own 44% of the company while the two actresses own 9% each.
Winter storm
A large winter storm is expected to hit the West Coast this week. Forecasters predict it could bring a month’s worth of rain in a matter of days. The Sierra Nevada could see more than a foot of snow. With 55% of the country in some level of drought, precipitation is needed.
An early start to the snowpack would bring welcome relief to farmers and ranchers in the West, where 97% of the area is in a drought. The country still looks to be headed into the second year of La Nina, which brings warm, dry conditions across the southwest. Real relief for farmers would require a couple more similar-sized weather systems for the West Coast. California grows over a third of the country’s vegetables and two-thirds of the fruits and nuts.
