Truck freight rejection rates fall (UTZ)
Dry van spot rates have fallen 37% since the end of 2021. Another indicator of the change in the truck freight market is the drop in the percentage of contracted loads rejected by the truckers. Only 11% of van truck loads are being rejected down from 25% a year ago as seen in the following chart. At the start of March, the rejection rate was 18.7%. The refrigerated truck tender rejection rate has also dropped from 38% at the end of 2021 to 20%. A high rejection rate indicates that truckers have more revenue options while a low rejection rate indicates there are fewer loads to choose from.
Lower spot rates will lead to lower contract rates in 2023. Truck freight costs have been a sizable margin headwind for the CPG companies. Shippers have been negotiating contracts more frequently in the past year which could result in contract rates more rapidly reflecting the weakness in the spot market.
Baby formula shortage (PRGO)
According to Datasembly, a retail and CPG data provider, out of stocks for baby formula have increased this year reaching 31% in April. For most of 2021 out of stocks ranged between 2 to 8%, but surged at the end of the year to 11% in November. In January, out of stocks were 23% and have increased further. The shortages are blamed on inflation, supply chain shortages, and product recalls. The FDA ordered a recall of baby formula produced by an Abbott Nutrition facility earlier in the year. Price increases could be causing families to stock up on baby formula. Some retailers have responded by limiting how much customers can purchase in a single transaction. Datasembly reported that prices of the popular brands have increased 29% since the third week of March and 11% since November. Out of stocks of at least 40% range across the country from metro markets including Seattle, Houston, Minneapolis, and New Haven. According to the CDC in 2017 25% of infants were fed exclusively through breastfeeding. Perrigo produces store brand infant formula comparable to Ensure, PediaSure, Pedialyte, and Similac. The category represents ~15% of sales. Since Perrigo manufactures the store labels, it is the beneficiary of trade down or any cost saving measures by consumers.
We are moving Perrigo one spot higher on our position monitor. There continues to be concern about inflationary pressures on costs – primarily plastic resin, ocean freight, and China manufacturing. Truck freight cost relief and infant formula pricing and share gains are recent tailwinds.
Craft beer’s off-premise stumble (SAM)
YTD through April 2, craft beer sales have declined 10% according to Bump Williams Consulting and NielsenIQ. In 2021, craft beer sales declined 6%. In the most recent four-week period craft beer sales performed even worse, -12%. Craft beer is underperforming the broader beer category’s 3.1% decline. Hard seltzer sales declined 4.7%. The only segments of beer that are growing are imports +4.7%, FMBs +2.1%, and non-alcoholic +17.6%. Of the top 15 craft beer manufacturers only New Belgium (+8.3%) had YOY sales growth. Samuel Adams was down 7.5%, Dogfish Head (SAM) was down 21.9%, Lagunitas (HEIA) was down 10.8%, and Shock Top (BUD) was down 30.6%. Beer manufacturers have been raising prices this year with 23 of the top 25 brands having higher average prices. YTD the average price paid per case was up 4% while the average price was up 7%, implying mix was up 3%. Craft beer is the largest beneficiary of the on-premise sales recovery. Including the on-premise sales would paint a different picture of the craft beer sector. The smaller local craft brewers will have better results than the national and regional craft brewers due to the mix of on-premise vs. off-premise in 2022. Boston Beer reports its last quarterly results against difficult comparisons. Going forward the comparisons benefit from excess production last year, but true growth in demand remains tepid.
