SunOpta reported EPS of $.01, ahead of consensus of -$.01. Revenue grew 15.7%, 9% above expectations with two-thirds from pricing and one-third from volume/mix and an acquisition. Total gross margins contracted 270bps, improving significantly from the 650bps of contraction in Q4.
Fruit-Based revenue grew 18.7% with half of the growth due to a non-recurring sale to its largest customer. Two-thirds of the remainder of growth was due to pricing and one-third from price/mix. Segment gross margins were flat with a 100bps headwind from pass-through pricing.
Plant-Based revenue grew 13.4% with pricing up ~8% and volume/mix up ~5.4%. Oat milk sales continue to be the driver with growth of 59% and plant-based milk sales up 18%. Management said they are selling all the oat milk they can produce. The current run rate of oat milk production represents a full year at $120M, up 50% from 2021. Segment gross margins contracted 470bps with a 150bps headwind from pass-through pricing and 320bps of headwind from raw materials and freight. Only $2M of the $23M higher COGS inflation was not covered by higher prices, while depreciation was $1M higher.
After two difficult quarters from an operational perspective with supply chain challenges and Omicron employee challenges, SunOpta's manufacturing turned a corner in Q1. Production increased 86% YOY and 19% sequentially, leading to better unit margins and overhead. The next two capacity expansion projects which are underway are expected to add $250M in revenue. Those two projects will complete the six that were expected to bring $415M in Plant-Based revenue in 2020 to double to $830M in 2025.
The company reiterated guidance for the year despite the upside in Q1. “We are not updating our financial outlook today. That said, we are increasingly optimistic about our ability to manage the controllable and enhanced execution in our plans.“ Gross margins are expected to improve each quarter this year.
Q1 likely represents an inflection for the company with improved production leading to better margins. Pricing is still catching up to COGS inflation which should lead to sequentially improving results this year. The Fruit-Based segment’s production shift and normalized strawberry harvest should lead to the best results in years. The Plant-Based segment continues to be driven by the consumers’ shift to oat milk which should drive ~50% revenue growth for the remainder of the year. The upcoming analyst day will help investors understand the transformation the company has undertaken and the opportunities in plant based beverages ahead of it in the years to come.
