PNRA – Wheat Price Favorability

Wheat prices declined nearly 14% last week and are down 50% from the peak levels seen back in March. For PNRA, a $1 change in the price of wheat impacts the company’s full-year costs by $3.25 million, or about $0.06 per share. PNRA offsets some of these rising costs with price increases, however, so the company does not typically feel the full impact of that increase on the bottom line. Earlier in the year, PNRA locked in its full-year 2008 wheat costs at $14/bushel and has since then contracted 95% of its 1H09 requirements at $10/bushel (versus the average $15/bushel paid by the company in 1H08). Based on the 1H09 cost of $10/bushel, the $4 of wheat price favorability versus 2008 represents about $13 million of lower commodity costs in FY09.
  • With wheat prices having recently fallen to below $7/bushel, PNRA could see even more substantial savings in the back half of 2009. Management said back in June when it announced that it had locked in its wheat requirements for 1H09 that part of the benefit from more favorable YOY wheat costs would be offset by higher commodity costs, notably proteins, dairy, packaging, and the increasing cost of gasoline, but that was when wheat was trading closer to $9/bushel.
  • Also, PNRA has not seen the demand destruction experienced by other restaurant companies. The Panera Bread concept is able to attract customers at multiple day parts, which is a clear advantage in difficult times. Helping to drive sales is a new breakfast sandwich which is driving incremental customers in the critical morning meal period. If top-line trends continue to hold up in FY09, I would expect PNRA to see incremental benefit to its bottom line as the company finally experiences some relief on the wheat cost front.