Accelerating prices and expanding margins (NOMD)
Nomad Foods reported preliminary Q3 sales and EBITDA, both ahead of expectations. Revenue of €760M, was 6% ahead of expectations. Organic revenue grew 7.2% with pricing of +10.6% accelerating from +2.5% sequentially and volume/mix of -3.4%. Gross margins expanded by 110bps due to the price increases. EBITDA is expected to be €153M, exceeding consensus expectations of €130M. Management also reaffirmed EPS guidance of €1.65-1.71 with consensus at the low end of the range. The company pre-announced Q3 results ahead of a refinancing of its $960M Term loan with an $825M seven-year term loan. Nomad Foods has several headwinds including the weaker Euro and Pound, the impact of Russian sanctions on souring fish, higher interest rates, higher energy costs, and other inflationary pressures. As a company with leverage, Nomad Foods had to raise prices aggressively, but the swift price increases and modest volume declines were positive. The market was not as impressed as we were, but the consumer outlook in Europe remains the largest concern for investors and positive near-term results will not allay most concerns.
Organic produce pricing gap (SFM)
Fresh organic produce sales rose 4.1% in Q3, but volumes declined 4.5% YOY according to Organic Produce Network and Category Partners. Organic produce pricing per pound increased by 8.9% in Q3. In comparison, conventional produce’s average price per pound rose 10.3%. The average price gap between organic and conventional was the largest it has been in four years. Organic’s share of fresh produce sales was 11.8% in the quarter, 0.5 share points lower. Overall fresh produce department sales grew 8.3% in dollars while volumes declined by 1.5%. Organic produce volumes declined three percentage points greater than the decline in conventional produce volumes in Q3. Organic apples and lettuce had price inflation more than double that of conventional resulting in a 15% volume decline. Even though conventional produce had a larger price increase, organic’s higher price points resulted in switching customers. The inflationary headwinds are a challenge for Sprouts Farmers Market, which is on our short list.
Flu underway (PRGO)
Nationwide 3.3% of patient visits reported through ILINet were due to respiratory illness as seen in the chart below. The CDC estimates that so far this season there have been at least 880,000 flu illnesses. Media reports have been highlighting flu hospitalization rates have not been this high at this point in the season since the H1N1 swine flu more than a decade ago.
Flu activity is highest in the south and southeast with minimal activity in the northern and western states. Flu vaccinations at 128 million doses currently, trail 140 million at this point last year and 156 million two years ago. The flu season has just begun, but Australia experienced an early, record start this past summer. There is no vaccine for RSV. Perrigo’s cough/cold business would benefit from a “normal” flu season against the COVID comparisons.
