Private label (THS)
There has been an increasing trend towards private label seen in 2022. Improving supply levels as well as continued inflation has resulted in consumers trading down as seen in the following chart:
There remain food and beverage categories in which consumers are still trading up as seen in the following chart. However, the growth rates are higher in categories with high private label share that consumers are trading down in. TreeHouse Foods is well positioned from a shift towards private label. It has private label leadership in many of the 29 grocery categories it competes in. As the top line accelerates, the question is whether the company can return to historical levels of profitability.
Flu monitor (PRGO)
The CDC estimates that there have been at least 25 million illnesses from the flu this season through the week ended February 18. The flu had surged since Thanksgiving but has declined in most areas despite the Christmas and New Year’s holidays. The flu sometimes has two peaks, but influenza A(H3N2) continues to be the main subtype (97%) making a second peak less likely. If the trend continues this season’s flu will have started early and ended even earlier.
The cumulative hospitalization rate is the second highest observed for the seventh week of the year going back to 2010-11, following only the 2017-18 season. The in-season cumulative hospitalization rate is still lower than the end-of-season hospitalization rates for all but five pre-COVID-19 seasons (2014-15, 2016-17, 2017-18, 2018-19, 2019-20). 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. Perrigo will report Q4 results after the market close on February 27 and host an investor day on February 28. With depleted inventory levels at retail for Cough & Cold, a better outlook for Oral Care from lower freight rates, additional Infant Formula production capacity (better for revenue growth and margins), and continued synergies from HRA, Perrigo's 2023 is set up to put the challenges of 2022 behind. Setting expectations that investors have confidence in that can be exceeded over the course of the year will be the most important aspect of the investor day.
store label in Dairy (STKL)
Store brand dairy sales grew 18% in the 52-week period that ended December 9, approaching $30B. White milk sales represented nearly a third of the total at $8.6B, followed by cheese at $8.1B, and butter/creams at $1B. Dairy milk sales growth was entirely driven by price as volumes fell slightly for store brand and brands. According to IRI private label has outpaced brands in 12 of the 15 dairy categories. Oat milk has few private brands currently, a reflection of capacity availability rather than demand. SunOpta is well positioned to provide oat milk to retailers when they start their programs. SunOpta reports FQ4 results after the market close on March 1. SunOpta’s newest plant came online at the end of the year. Production at the new plant is held for 30 days before shipping begins after which it will be a significant driver of revenue growth over the next two years.
