December PPI (LANC, UTZ)
The PPI for food manufacturing decelerated to 10.8% in December from 11.7% YOY in November. On a two-year average basis the PPI slowed by 30bps to 11.5%. Producer prices have decelerated from the highs in early 2022, but have continued to remain elevated. CPG price increases have widened the gap over cost increases leading to expanding gross margins. Our outlook for food at home CPI continues to be well above consensus expectations in the 1H of the year.
The PPI for fats & oils accelerated to 13.8% YOY in December from 12.8% in November. Fats & oils, a key input in a variety of food products, have decelerated rapidly since March but have bounced in the past two months. Utz Brands and Lancaster Colony have seen significant margin pressure from higher input costs including from cooking oils. 2023 will see margin recovery from price increases and falling input costs.
Return to the office (KR)
Office occupancy levels bounced back to 46.9% in the week ended January 11 after falling during the holiday weeks. Hybrid schedules are becoming more common which means the likelihood of a headwind for meals at home from the return to the office has diminished three years after the pandemic. The work-from-home perk may be one of the more significant lasting effects of the pandemic for CPG companies.
Wild verdict (CELH)
Hip-hop artist Flo Rida was awarded $82.6M in a lawsuit against Celsius. The Broward County jury found Celsius in breach of contract. Flo Rida, the singer behind hits like "Wild Ones," had an endorsement contract with the energy drink company from 2014 to 2018. Flo Rida sued for a 1% ownership of the company he was promised for endorsing the product and the product reaching certain sales milestones. Flo Rida said, “Basically, I helped birth this company, and all we was looking for was some trustworthy people who acted as if they were family. And then when it comes down to the success of today, they just forgot about me.” Celsius could appeal the verdict, but breach of contract cases are not accustomed to runaway jury awards like punitive damages can be. Celsius probably should have settled the case the earlier the better with the way the shares have performed. From our view on the shares, it is better to settle in cash than shares.
