Flu season – U.S. hospitalizations hit a decade high (PRGO)
The CDC issued an advisory about respiratory viruses to thousands of healthcare providers last week in an attempt to bolster testing, treatment, and vaccination. Over 4,300 influenza patients were admitted to hospitals in the week ending Oct. 29, the highest for that time period in a decade and nearly double the previous week. The CDC estimates there have been at least 1.6 million illnesses from the flu this season. Numerous southern states are reporting very high levels of influenza activity. The flu season has just begun, but Australia experienced an early, record start this past summer. Perrigo’s cough/cold business would benefit from a “normal” flu season against the COVID comparisons.
Plant-based milk not diet-driven (STKL)
According to surveys conducted by Cargill, consumer demand for plant-based dairy is growing despite a decline in people following vegetarian and vegan diets. Cargill conducted a survey of consumer consumption behavior in February 2021 and a follow-up survey in July 2022. Fewer consumers reported following a vegetarian or vegan diet, from 14% in 2021 to 9% in 2022. The number of consumers actively avoiding animal-based dairy products fell from 40% in 2021 to less than 30% in 2022. 60% of survey respondents said they consumed more plant-based milk over that time period. The growth in plant-based milk demand appears more sticky as the demand drivers are varied. SunOpta is the best way to invest in the growth of plant-based milk, particularly oat milk.
SunOpta reports Q3 results AMC on Wednesday. The company laps the supply chain and labor challenges that caused significant gross margin contraction last year. SunOpta also had a lag in passing on price increases last year but is now caught up. The Fruit-Based business is much improved from a profitability standpoint than where it was last year. The Plant-Based business run rate should be similar to Q2 as industry sales do not appear to have slowed down. The company will incur $10M of start-up costs for the new Texas plant in the 2H, but they are excluded from adjusted EBITDA even though they will be reflected in reported margins.
Smaller California grape harvest (NAPA, VWE)
Allied Grape Growers, an association that represents ~500 California grape growers, projects the state’s grape crop to be below average for the third consecutive year. In the North Coast region, growers are reporting yields 15-30% lower than average. Sonoma County’s Zinfandel and Pinot Noir were among the varietals that are short. Prices and demand for Napa County Cabernet Sauvignon have remained strong. In the Central Valley, this season’s frost and heat wave both had negative impacts, lifting prices. In the Central Coast region the harvest is expected to have one of the lightest yields, but due to the increased acreage, it may not be the smallest crop. Growers in the region have reported yields between 15 to 60% below normal. The selling position for growers is the best since 2016-17 and will support higher prices for 2023 contract negotiations. Wineries are having difficulty raising prices this year. Higher grape prices may force more discipline in the sector to raise prices with lower yields, but costs are likely to be ahead of pricing.
