What happens without easier comparisons? (TAP)
Molson Coors reported Q2 EPS of $1.19 vs. consensus of $1.18. Revenue was slightly below expectations while EBITDA was below expectations. Fx was a 280bps headwind to revenue and 150bps headwind to EBIT. Overall revenue grew 2.2% driven by the EMEA and APAC regions. Volumes decreased 4.6% while sales per hectoliter grew 7.1%. In the U.S., the on-premise channel has recovered to 93% of 2019 levels, up 6% points from Q1. In Canada, on-premise revenues have recovered to 77% of 2019 levels, up from 55% in Q1. In the U.S. revenue decreased 2.1% with shipments down 8.2% with economy brands volume declines in the HSD%. In Canada revenue decreased 2.3% with volume declines of 8%. In the EMEA and APAC regions sales grew 20.5% with sales per hectoliter up 15.5% and volumes down 6.2%.
Cost per hectoliter increased 11.5% driven by inflationary pressures and in the Americas, it increased 10.2%. M,G&A growth was 7.5% YOY. In the U.S. the company is increasing prices by an additional 3-5% in Q4. EBIT decreased 22.8% YOY in constant currencies with the U.S. down 20% and EMEA & APAC down 22.7%.
Management reaffirmed revenue growth guidance of MSD% and EBIT growth of HSD% for the year. The guidance that was previously thought of as conservative looks to be vulnerable. Molson Coors shares had been strong YTD, reflecting optimism that estimates were too low with easy comparisons. The company has anniversaried the easier base effects in the U.S. and will anniversary them in EMEA and APAC markets which are driving current results. Beyond easier comparisons, the long thesis gets thin.
A broken story in more ways (OTLY, STKL)
Oatly reported a slightly narrower EPS and EBITDA loss for the quarter than consensus expectations, but revenue growth of 22% (30% in constant currencies) was below expectations. Production volumes increased from 121 million liters in Q1 to 124 million liters. The foodservice channel represented 35% of revenue in the quarter (up 200bps), while the retail channel represented 57%. Revenue per liter decreased 4.5% due mostly to Fx.
Gross margins were 200bps lower than expected, falling to 15.8% from 26.4%. In Q2, the company self-manufactured 34% of total volume, while co-packing was at 27%, and hybrid was 39%. The company raised prices by 10% effective August 1. Inflation is expected to impact COGS another 5-6% from Q2 in the coming quarters.
Management expects revenue growth of 30-34% in constant currencies for the year but reported revenue is expected to be 10% less than previously guided or $80-90M less including an incremental $35M Fx headwind. Management discussed a slower conversion of dairy drinkers to plant-based milk, the economic headwinds in Europe, and a reduced distribution pace for the foodservice channel particularly in Europe as near-term challenges. Production volume is expected to be between 135-145 million liters in Q3, which is what management expected for Q2 a quarter ago. Run-rate production capacity is still expected to be 900 million liters at year-end. Capex plans for the year have been reduced from $400-500M to $220-240M as management has slowed expansion plans, particularly in Europe in an effort to match supply to demand.
Oatly’s problems since going public have been around production ramping up to meet demand. Now there is an element of a slower demand ramp-up, although management refers to it as customer recruitment. A broken growth story has become more broken, but demand for oat milk in the U.S. remains strong for SunOpta. Demand elasticity for plant-based milk in a slower economy is somewhat unknown, but Oatly’s concerns were centered on Europe.
Cold sales are brewing (RVAC)
Cold brew coffee servings increased 27% to 373 million in the 12 months ended April according to NPD/CREST. Servings of iced coffee remained the category leader at 2.8 billion servings growing 11% YOY. One of the drivers of cold beverage sales has been visitations later in the day, a trend that picked up as people worked from home during the pandemic. Cold beverages comprise 70% of the sales at The Coffee Bean & Tea Leaf, 58% of sales at Bad Ass Coffee, and 70-80% of sales at Dutch Bros. Innovation is a key driver of cold beverage sales. The CEO of Bad Ass Coffee said to QSR Magazine, “Brands are listening and creating more and more innovation.” The President of Coffee Bean & Tea Leaf said, “Cold is here to stay but the name of the game is innovation.”
The majority of restaurants and coffee shops outside of Starbucks outsource some elements of coffee R&D which is a key advantage of Westrock Coffee. Westrock Coffee is the largest store label coffee and tea provider to U.S. restaurants. The ongoing shift in the consumers' coffee consumption to cold brew, pods, and RTDs underpins the company's investments for expansion. Not only is Westrock Coffee profitable, but the company's growth drivers in the next few years are highly visible. The company's 20% revenue CAGR and margin expansion are best in class for top and bottom-line growth. Westrock Coffee is expected to de-SPAC in Q3.
