A welcome Analyst day (STKL)
SunOpta hosted its first analyst day at its HQ in Eden Prairie, MN. Management disclosed new figures about the size, growth rates, and profile of its product segments. Management also provided very clear financial goals, the steps needed to achieve the targets, and the marketplace conditions in which they can be achieved. By 2025 management expects revenue to reach $1.3B, representing a 13% CAGR. Management expects adj. EBITDA to reach $150M, representing a 25% CAGR. To hit those targets management provided the four deliverables:
Each individual driver seems conservative based on the current momentum of the business, new capacity additions, and secular demand growth for the underlying product category.
Based on the targets management outlined, we see a path to shares more than doubling from current levels within two years. We will follow up with additional details and thoughts about the analyst day.
Low bar, high valuation (NAPA)
The Duckhorn Portfolio reported FQ3 EPS of $.17 vs. consensus of $.13 and $.17 in the prior year. Sales grew 1.3% with price/mix of +1.9% and volume declines of 0.6%. Management said depletions grew double digits. Sales grew to distributors and in the direct to California retailers channel while sales fell 12.4% in the DTC channel. Gross margins contracted 390bps due to an inventory reserve for exiting hard seltzer, which offset a favorable mix. Adj. EBITDA was flat YOY with $0.9M of incremental public company costs.
Management raised guidance for EPS to $.59-.62 compared to $.58 last year. Sales guidance was raised to $369-373M. Guidance implies a notable sequential acceleration, but management attributed that to the timing of Kosta Browne Estate shipments falling fully in FQ4 this year. Adjusted EBITDA is expected to be between $125-128M. The leverage at the end of the quarter was 1.9x.
NAPA is on our short list due to our concerns about how the company’s price initiatives will negatively impact growth in the wholesale channel. The DTC channel should have the best ability to raise prices in addition to easy comparisons. Despite the attention it received in the IPO roadshow, management should probably be commended for ending the seltzer foray relatively quickly. At 29x forward EPS estimates and 17.5x EV/EBITDA we do not see the upside implied by the valuation.
The deceleration in C-stores in Q1 (UTZ, TAP)
According to IRI C-store sales decelerated to +1.7% YOY growth in Q1 from 4.6% in Q4. The grocery channel grew 4.6% in Q1, the mass channel grew 7.7%, the drug channel grew 10.4%, and the club channel grew 9% in comparison. Beer and cigarettes, which combined represent 44% of c-store channel sales, fell 4.8% in Q1. Beer category sales declined 3.1% with price up 4.9% and volume down 7.7%. Non-alcoholic beverages performed better than the beer category with growth of 6.3% driven by a price increase of 6.8%. Sales of salty snacks grew 12.2% with pricing of 8% and volume of 3.9%. Other notable outperforming categories include RTD cocktails which grew 34.5% and milk alternatives which grew 20.1%. Particularly weak categories include value beer which declined 12.2% and 1% milk which declined 12.6%. The C-store channel is being disproportionately impacted by higher gasoline prices and the outlook does not look any better.
