Idea Hunt (HSY, KMB)
We are hosting an Idea Hunt call for Restaurants and Consumer Staples today at 12:30 PM ET. We are adding Hershey (HSY) to the Long Bias list. Kimberly-Clark (KMB) is on our Short Bias list.
Webcast & Slides: CLICK HERE
The topics we will cover include:
- How to be positioned in Restaurants and Consumer Staples in Quad 4.
- New idea generation heading into 2023.
- Hershey (HSY) is a best-in-class confection and snacking business with strong brands that enable pricing power. Is the margin recovery priced in? Does the valuation already reflect full margin recovery? Does it reflect margin reinvestment and mix headwinds?
- Kimberly-Clark (KMB) has implemented price increases to recapture margins negatively impacted by higher commodity costs. In Q4, consensus expects margins to expand for the first time since the anniversary of the pandemic. Will commodity costs cooperate and pricing power hold up in 2023? How long will it take to return to 2019 margins, and what volumes will be needed?
- We are negative about the food service distribution space. Should SpartanNash (SPTN) be part of that short or the exception? How have the activists changed the company?
- Domino's (DPZ) is a Best Idea Long in Restaurants, but how is its biggest publically traded franchise group, Domino's Pizza Enterprises (DMP.AU), looking?
Our updated Position Monitor:
Flu monitor (PRGO)
The CDC estimates that there have been at least 8.7 million illnesses from the flu this season through the week ended November 26. There are multiple respiratory viruses co-circulating currently. The cumulative hospitalization rate is the highest it has been since 2010-11. A much higher proportion of flu tests are turning up positive than in previous years. During large flu seasons in the past, the positivity rate peaked at ~3.6%, but last week 25.1% of flu tests were positive. More people who are feeling sick have the flu than in the recent past. Most of the influenza viruses tested by the CDC are similar to the ones targeted by this year’s flu vaccine.
Respiratory illnesses are having a much larger impact on the youngest people. The percentage of outpatient visits for children aged newborn to 4 years old for respiratory illness was ~18% last week. In comparison, for adults aged between 25 to 49 years old it was less than 5%, for adults aged 50 to 64 years old it was less than 3%, and for adults aged over 65 years old, it was less than 2%. While flu activity continues to ramp up, RSV is showing signs of slowing down and cumulative hospitalization rates are ten times higher than typical for this point in the season. 11 states are currently at the highest level for respiratory illness activity.
Perrigo’s Q4 is mostly set for the cough & cold season as orders are already in and production is maximized, especially for liquid medicines. A larger or longer cough & cold season would be seen in Q1 results as retailers reorder more inventory.
Canadian Beer (TAP)
Total beer volumes in Canada decreased by 5.3% in October, decelerating from -2.3% in September. Domestic beer volumes decreased by 4.1%, decelerating from -1.9% in September. Imported beer volumes decreased by 13.6%, decelerating from -5.8% in September. YTD beer volumes are down 3.5% in Canada despite the easier on-premise comparisons. One of the challenges to the on-premise industry is a labor shortage which is limiting hours of operation. For Molson Coors, the Canadian on-premise channel is still trailing pre-pandemic levels.
