Slower trends at the pump (CASY, BJ)
Ahead of a non-deal roadshow Casey’s General Stores guided FQ3 same-store inside sales to the lower half of the 5-7% expected range for the year and below the 7.9% reported in FQ2. Same-store fuel gallons are expected to be near the low end of the annual flat to +2% range, in line with the 0.3% reported in FQ2. QTD fuel margins were said to be similar sequentially. We added BJ Wholesale Club to our short list due to our concerns that the benefit from gasoline sales was more than previously thought. Our analysis points to half the gross profit growth in 2022 coming from the gasoline business. A reversal in the commodity business would cause the grow the company to miss its long-term growth targets in 2023.
Canadian Beer (TAP)
Total beer volumes in Canada decreased by 3.6% in December, improving slightly from -5.0% in November. Domestic beer volumes decreased by 2.2% in December, improving slightly from -4.3% in November. Imported beer volumes decreased by 12.2% in December, decelerating from -9.8% in November. Beer volumes fell 3.6% in Canada in 2022 with imports growing 2.4% and domestics decreasing 4.4% despite the reopening of the on-premise channel. Beer volumes have been declining for several years in Canada. 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.
No more veggies (DOLE, APPH)
Dole announced the sale of its Fresh Vegetables division to Fresh Express, a subsidiary of Chiquita, for $293M. The unit had revenue of $1.28B in 2021 and is the smallest of four segments. The Fresh Vegetables division includes the operations related to the processing and sale of whole produce as well as salads and meal kits. In the value-added salad business, Dole was #3 in market share. The proceeds are expected to be used to reduce debt.
The fresh vegetable industry remains challenged by softness in the category, inflationary headwinds, and supply shortages. The margin headwinds most recently were due to freight, packaging materials, food ingredients, labor, and higher costs from weather. Dole had been making changes to the Fresh Vegetables operations and management expected a turnaround in 2023. Chiquita will see a margin benefit from combining the operations even if Dole’s segment does not see a turnaround. It makes it difficult to see how AppHarvest can succeed in fresh vegetables when Dole with its brand, scale, and distribution gave up.
