Truly’s hangover (SAM)
Boston Beer reported Q3 adjusted EPS of $3.82 vs. consensus of $3.07. Revenue grew 6.2%, slightly ahead of expectations. Depletions decreased by 6% due to weakness in Truly, Angry Orchard, Samuel Adams, and Dogfish Head while Twisted Tea and Mountain Dew grew. Excluding Truly’s declines depletions increased by 14%. Shipment volumes increased by 1.4%.
Gross margins expanded by 1,250bps against were below expectations due to high obsolescence from the changeover at Truly. Advertising, promotional, and selling expenses decreased by 7.9% due to less media spend and lower freight rates.
Management narrowed their guidance for adjusted EPS to $7 to $10 from $6 to $11 previously. Depletions and shipment expectations were revised to -4 to -7% from -2 to -8%. Price increases are expected to be at the upper end of the 3-5% range. Gross margins are now expected to be between 42-43.5% from 43-45%. It is positive that depletions were as strong as they were without Truly, but it’s not like you can just exclude it when two years ago that is all investors wanted to count. Lapping inventory writedowns and easy comparisons does not attract us without better top-line visibility. There are too many brands going in the wrong direction. We remain on the sidelines for Boston Beer with Truly becoming such a drag.
Buying into Europe (LW)
Lamb Weston announced it will acquire the rest of its European joint venture with Meijer Frozen Foods for €700M in a combination of €525M in cash and the rest in shares. The 50/50 joint venture with Meijer started in 1994.
Lamb Weston expects to close in the 2H of 2023. The JV had revenue of €840M, excluding the sales in Russia of €114M. Lamb Weston will consolidate the segment’s operations upon closing after previously recording its portion of earnings in the Equity Method. The JV lasted much longer than JVs typically do, because both companies benefited from it. The business outlook in Europe looks challenging with high rates of inflation and skyrocketing energy costs, but the JV’s results were improved in last week’s report. Lamb Weston also plays the long game.
Abbott plans a new infant formula plant (PRGO)
Abbott plans to build a $500M manufacturing facility that will produce specialty and metabolic infant formula. A Census Bureau survey found that nearly a third of U.S. household with a baby less than 1-year-old had difficulty finding baby formula last month. More than 40% of the respondents said they had a week’s supply on hand or less.
Abbott said it expects production from its restarted Michigan plant to reach store shelves in the coming weeks. Utilizing its overseas production Abbott said it shipped the same volume of baby formula in the past quarter as it did in the three months prior to the recall. Abbott also made leadership changes at the Michigan plant. Abbott issued a product recall for some ready-to-feed baby formula products due to faulty bottle caps. The recall is only one day’s worth of supply, but does reinforce the ongoing confusion for parents. In-stock levels have been improving, but are still not back to pre-recall levels. Perrigo as the manufacturer of store-label infant formulas is positioned to benefit from the higher prices and shortages in the market.
Wine DTC gets to flat (NAPA)
Wine DTC shipment value was flat in September, improving from YOY declines in the previous three months. Volumes fell 5% while the average price increased 5% to $44.21 per bottle. Cabernet Sauvignon grew 18% while volumes grew 1% and was the strongest varietal and the only varietal with volume growth. DTC is at the higher end of the wine tier which has been stronger than the lower-priced tiers for several years now.
