Strategic Review (ACI)
Albertsons announced that its board has started a strategic review to consider potential transactions or other actions. The review will include balance sheet optimization, capital return strategies, or financial transactions.
Albertsons went public in June 2020 after several previous attempts since 2015 failed to get completed. The pandemic has been a tailwind for conventional grocers as consumers shifted more meals to at-home and reduced food shopping trips. At 10.5x forward consensus P/E estimates and 7x EV/EBITDA shares are trading at a higher multiple than at the time of the IPO. Since the IPO shares are up 82%.
The current stance of the FTC and DOJ makes a large merger unlikely as the called-off merger between Stop & Shop and King Kullen demonstrated. Re-leveraging the balance sheet is certainly a possibility as Albertsons has reduced net indebtedness by $2B since going public. However, one of the largest concerns, when Albertsons was going public, was its on and off-balance sheet debt. The dividend could be raised from the current 1.7% yield, but it is not clear that doubling the dividend would change the valuation or attract a wider shareholder base substantially.
Truck rates decelerate (UTZ)
Refrigerated truck rates for the week ended February 22 fell 1.3% week over week. Prices were up 60% YOY, but are 7.6% lower than the beginning of the year as seen in the chart below. Our Industrials team recently added three trucking companies to their short idea list citing “In the last two years a variety of factors, including COVID and supply issues, have slowed transportation networks and entangled capacity in the congestion. Rates have soared, resulting in what we expect to be cycle peak profits for truckload carriers. As transport challenges ease with COVID-related disruptions, capacity constraints should ease with rates. Decelerating economic growth, tighter policy, and inventory normalization should add to pressure on rates.” The trucking call will be held on March 3 at 2 PM ET.
Food inflation (KR)
According to dunnhumby’s 9th Consumer Pulse Survey Americans’ assessment of food inflation is significantly higher than the CPI reported food inflation. Survey respondents believed the rate of inflation was 17.7% compared to the 7.4% reported by the BLS. Despite the high rate of inflation and self-reported weakening personal finances, money saving strategies have not materially changed as seen in the chart below. The survey was conducted between January 25 and February 8. Consumers save with more methods than choosing the store, using coupons, searching online, and buying private label. They can purchase smaller sizes, substitute with other brands or products, purchase fewer items, skip certain items, etc. With fewer government transfer payments in 2022, it is highly unlikely that consumers will not be changing their shopping behavior to offset food inflation.
