Oat milk does a company good (STKL)
SunOpta reported Q3 EPS of $.02 vs. consensus estimate of -$.01. Revenue growth of 15.7% was in line with expectations, but Fruit-Based margins were better than projected. Revenue growth was primarily driven by price, but volume growth was 3.7%. Plant-Based volumes grew 7% driven by oat milk, while Fruit-Based volumes were driven by nearly 52% growth in Fruit Snacks. Total gross margins expanded 190bps despite 140bps of dilution from pass-through pricing and 30bps of additional depreciation. SG&A grew $4.2M, mostly from stock-based compensation.
Plant-Based revenue grew 19.9% with pricing of 16.2%. 70% of the segment’s revenue is plant-based milks which grew 25%. The retail channel grew by 16% while the foodservice channel grew by 30%. SunOpta’s oat milk sales grew 68% in Q3, outpacing the category’s 29% growth in Q3. Oat milk is now the company’s largest plant-based milk. Almond milk dollar sales grew MSD% while soy milk grew LSD%. Retail was up 16% while foodservice was up 30%. New products or new customers accounted for 15% points of the revenue growth. In the latest 13-week scanner data, the plant-based category had 12% growth with units down 2%. Private label grew 7% with units flat, representing 15% of the category. Oat milk sales dollars grew 29% and unit growth was 12%. Oat milk now represents 21% of the plant-based category.
Segment gross margins contracted 170bps due to 225bps of pass-through inflation recovery (passing on the $ increase, not the margin increase), 60bps of additional depreciation, and 40bps for the Texas plant startup costs. Gross margins would have expanded 150bps excluding the three margin headwinds. Segment operating margins contracted 60bps largely due to pass-through pricing.
Fruit-Based revenue grew 10% with pricing of 10.6% and volume/mix decline of 0.6%. Fruit snack growth of 52% driven by volumes drove the segment while frozen fruit was flattish. Higher prices in frozen offset volume declines. Gross margins expanded 670bps, the highest level in five years, despite 50bps of headwind from pass-through pricing due to the frozen business. Driving the expansion was the culling of low-margin business, shift of manufacturing plants, increased volumes, and plant efficiencies. Fruit-Based profit margins expanded 130bps to 3.3%.
Management raised the low-end of guidance from $900-960M to $940-960M before adjusting for the divestment of the sunflower business which had Q4 revenue of $17M. EBITDA guidance of $72-78M was raised to $76-80M without any change for the divestment. The divestment of the sunflower business will be accretive to margins by 150-200bps for the full year.
The Fruit-Based business has been transformed just as the Plant-Based business has been. The new capacity coming online in combination with the momentum of oat milk demand provides a high degree of visibility in Quad 4. SunOpta is on our Best Idea long list.
Tasting Room Sales Decelerate (NAPA, VWE)
For the 450 wineries across California, Oregon, and Washington in Community Benchmark’s index, overall DTC sales increased 6.4% YTD through September, accelerating from the YTD through August of 7.5%. Wine club sales for the YTD ended September increased 10.4%, accelerating slightly from 10.2% sequentially. Total tasting room sales increased 9.8% YTD compared to the prior year. The number of visitors were down 1.2% YTD. That represents a acceleration sequentially from 7.5% sales growth in the YTD period through August. Tasting room sales decelerated in the three most important regions, Napa, Sonoma, and the Central Coast as seen below. Wine club sales increased 10.4% YTD through September, compared to 10.2% YTD through August. Vintage Wine Estates tasting room traffic grew 10% in Q3 (see below). he comparisons are becoming more difficult to lap as we lap California’s full economic reopening in June 2021. The on-premise channel is the driver of industry sales in 2022.
Margin woes (VWE)
Vintage Wine Estates reported Q3 EPS of $.05 vs. consensus of $.03. Revenue was ahead of expectations, but EBITDA was below expectations. Organic revenue growth was 13%. DTC grew 37% with organic growth of 17%. B2B revenue growth was 39% due to increased custom production. Wholesale grew 44% due to the acquisitions. Gross margins contracted 340bps due to increased overhead absorption. SG&A costs doubled YOY due to the acquisitions, stock based compensation, higher freight, and personnel. Management reaffirmed revenue guidance of $300 to $310M. Adjusted EBITDA guidance was revised to $50-60M from $55-65M. The company’s top-line outperformed the industry, but raising prices to offset rising costs has been a challenge for the wineries.
Where the alcohol isn’t (KDP)
Keurig Dr Pepper announced a $50M investment in Athletic Brewing Company, a non-alcoholic craft beer maker. Non-alcoholic beers have received much more attention from brewers and the media than the less than 1% market share they have. Non-alcoholic beers grew 20% YOY in the year ended on August 20. In our unofficial blind taste test in the office less people could pick which beer was the non-alcoholic Athletic Brewing Co. beer than if they chose at random. However, if you gave them half hour they would be able to tell.
Not losing share (AD-NL)
Ahold Delhaize reported SSS growth ex. fuel in the U.S. of 8.2%. Online sales grew 20.8%. Operating margins expanded 20bps in the U.S. driven by a 30bps benefit from a reserve release. Ahold’s Food Lion is not losing share in the supermarket industry, but supermarkets continue to underperform other food retail channels.
