Big game plans (KR, BUD)
According to an Advantage Solutions Pulse survey two-thirds of adults that expect to watch the Super Bowl plan to purchase special food and drinks. 54% of overall respondents plan to watch the game with 14% undecided. Of those planning to watch the game 22% plan to host a party, 26% plan to go to someone else’s party, and 13% plan to attend a party at a bar or restaurant.
34% of those hosting parties plan to spend more than last year’s party while 23% plan to spend less as seen in the chart below. 79% plan to serve salty snacks, 70% plan to serve pizza, 68% plan to serve beer, 60% plan to serve a giant sub or prepared sandwiches, 43% plan to serve wine, and 38% plan to serve other alcoholic beverages. 49% plan to buy prepared foods from a supermarket compared to 41% from restaurants. Supermarkets are expected to be the primary destination for Super Bowl spending. Last year’s Super Bowl was watched by 112.3M across all platforms, up 12.6% from the prior event and the highest in five years. The 2020 Super Bowl, the first of the pandemic, was viewed by 99.7M, the smallest audience since 2008.
The consumer will see some relief in some common Super Bowl items. Retail chicken wing prices were down 22% from January 2022. Avocado prices are down 20% YOY. Some of the higher price increases are in soft drinks up 20% and beer up 11%.
Pepsi passes on price (PEP)
PepsiCo reported Q4 EPS of $1.67 vs. $1.65 expectations. Organic revenue growth of 14.6% exceeded expectations but decelerated from 16% sequentially. North America grew by 14% and International grew by 16%.
- Frito Lay organic revenue grew 18% with volumes flat. Commodity costs increased by 19%. Operating profit grew 16%.
- Pepsi N.A. organic revenue grew 10% with volumes decreasing by 2%. Operating profit grew 23% (margins expanded 110bps) despite a DD% increase in marketing. The primary cost headwind was from commodity costs including fuel and resin.
- Quaker North America organic revenue grew 10% while operating profit was up 1%. Management cited a DD% increase in marketing, inflationary pressures, and supply chain constraints in Q4 while in Q3 operating profit grew 15%.
- International organic revenue grew 16% with beverages up 9% and convenient foods up 19%.
Gross margins expanded 30bps, improving from the 20bps contraction in Q3. Operating margins contracted 40bps with deleverage from marketing spend, worsening from the 30bps of expansion in Q3.
The company is making a push for Pepsi Zero Sugar in the U.S. with reformulation and marketing support. The product’s volumes grew 26% in Q4. Management said most of the price increases for the year are already in place.
Management guided 2023 organic revenue growth to be 6% and core constant currency EPS growth to be 8%. Management is planning for elasticities to worsen in the 2H. The annual dividend was raised by 10% to $5.06 per share.
We are taking PepsiCo to the top of our Best Idea Long list. With Quad 4 still the most probable in the 1H, PepsiCo shares many of the style factors that outperform including low beta, dividend yield, quality, and defensiveness. PepsiCo’s top-line growth drivers, pricing power, and margin recovery provide visibility in our higher-than-consensus expectations.
Open in Texas (STKL)
SunOpta announced the opening of its newest manufacturing facility in Midlothian, Texas on time and on budget. The capex for the plant was $125M. The new facility is currently 285,000 square feet, but has the space to expand to 400,000 square feet to take on future growth for oat extraction or another line. The facility will manufacture plant-based milks and creamers, tea, and 330 ml bottles for protein drinks.
The new plant gives the company nationwide coverage which is important from a cost perspective for a product that is mostly water. The lower freight costs are an advantage compared to competitors that for the most part produce out of one plant. SunOpta estimates the location will result in more than 15 million fewer freight miles. The production is under a 30-day hold period, so there is a lag between production and shipments.
Diluted (APPH)
AppHarvest priced its secondary offering at $1.00 compared to yesterday's closing price of $1.32. In addition to the 40 million shares, the underwriters have the option to purchase an additional six million shares. That's the largest secondary discount I can remember.
