Position Monitor Update (PRGO, LANC, UTZ, NOMD, ACI)
On the long list, we made several changes to the order of our positions based on visibility and conviction. A number of our longs are trading at or near 52-week highs, which we seek to balance with companies that are approaching a change in earnings estimates or investor sentiment.
- Perrigo moves from the middle of our list to a top three Best Idea Long. Perrigo reports quarterly results on Tuesday. Perrigo has the most catalysts of any company on our position monitor. The weaker Euro is a headwind for the HRA business, but the infant formula shortage continues to be a tailwind. Price increases are catching up to inflationary cost pressure while a favorable cough/cold comparison is approaching.
- Lancaster Colony and Utz Brands are both moving higher on our long list, reflecting improving visibility that cost increases are decelerating while price increases are accelerating, leading to an inflection in margins. The sales outlook remains robust for both companies.
- Nomad Foods moves to the bottom of our long list due to the weakness in the Euro.
- On the short list we moved Albertsons higher as the lockup expiration approaches.
Truck rates (LANC, UTZ)
Van truck spot rates in July were 3% lower YOY and 1.5% lower than in June. Since the beginning of the year, spot rates have fallen 15% as capacity has become more available. Contract rates, on the other hand, were up 18% YOY in July. Contract rates are up 8% since the beginning of the year, but in July, rates fell 1.5% from June. The freight market continues to transition back to contract from spot, which shippers relied on last year with significant supply chain challenges. The American Trucking Associations’ (ATA) truck tonnage index increased 7.9% YOY in June. The ATA index consists mostly of contract freight. The Cass Freight Index decreased 2.3% YOY in June. The expenditures component of the Cass Freight Index increased 8.8% MOM in June, with shipments down 2.6% and rates up 11.7% (with fuel representing about 10% of the rate increase).
Rail companies have begun metering intermodal capacity from the Los Angeles ports due to delays in retrieving containers in a repeat of last year. This has led to a pickup in rates on certain intermodal routes, but not enough to change the trend of the national average.
Lower freight rates would be a margin tailwind for CPG companies, but most companies will have to wait for new freight contracts in 2023. Lancaster Colony and Utz Brands are two companies on our long list that had a material cost headwind from truck rates.
Shareholder vote set (RVAC)
Westrock Coffee’s registration statement was declared effective by the SEC on Friday. The shareholder vote is now scheduled for August 25 to approve the merger between Westrock Coffee and Riverview Acquisition Corp. Once approved, the merger's closing will likely occur roughly one week later. 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. Management is taking the company public to finance the capacity build-out to pursue the growth opportunities it has in front of the company.
