BUD Black Book Invite
We are hosting our BUD Black Book presentation on March 6 at 12:30 PM ET.
- Webcast & Slides: CLICK HERE
- Add To Your Calendar: CLICK HERE
We will also refresh our outlook for the beer sector in 2023 and BUD's prospects specifically, by examining:
- Demographic trends
- Competition with other alcoholic beverages
- The outlook for on-premise vs. off-premise
- Cost drivers
- Price increases and demand elasticity
- International growth hot spots
- And more
Firing on all cylinders (STKL)
SunOpta reported Q4 EPS of $.02 vs. consensus expectations of breakeven. Revenue of $935M was in line with expectations and within the $923-943M guidance range while EBITDA of $84M was above the $76-80M range. Revenue grew 8.4% with the plant-based segment growth of 10.8% and fruit-based growth of 4.5%.
Excluding the sunflower business, which was sold in October, plant-based revenue grew 23.5% with volume growth of 10%. Pricing drove 13.5% points of growth while volume/mix drove 10% points. The plant-based segment saw broad based growth with double-digit growth in oat, almond, soy, and coconut milk(its four largest product types), double digit growth in retail, 30%+ growth in food service, and double-digit growth to three of its four largest customers. Oat product revenue grew 37%, outpacing the market growth. Total market POS plant based milk sales grew 12% in Q4 with unit declines of 4%. The overall market continues to be led by oat milk growth of 23% with 4% unit growth.
Pricing drove 6.4% points of the growth in Fruit-based while volumes declined by 1.9% points. Frozen fruit demand was lower in the quarter while fruit snacks and to a lesser extent smoothie bowl demand was higher. Tea grew 57% and broth grew 10%.
Gross margins expanded 400bps to 12.8%. Start-up costs at the Texas plant were $4.6M, a 210bps headwind. Plant-based gross margins expanded 360bps to 15.0% driven by higher volumes and pricing. In Q3, Plant-based gross margins contracted 170bps due to pass through inflation (passing on the $ increase, not the margin increase). In Q4, pass-through pricing was an 80bps headwind compared to 250bps in Q3. Fruit-based gross margins expanded 420bps to 9.0% due to reduced manufacturing expenses, higher pricing, and reduced inventory losses partially offset by lower frozen fruit volumes.
Management guided 2023 revenue to $1.0 to 1.05B and EBITDA to $97 to 103M, in line with consensus expectations. Revenue growth in 2023 excluding the sunflower business is expected to be between 14 to 20%.
The six million shares from the conversion of preferreds will be added to the diluted share count as would six million from Oaktree if forced converted.
SunOpta is a Best Idea Long. As a leading supplier of plant-based milk, the company's growth engine is the underlying secular growth in demand for the category. Within the growth of plant-based milk, oat milk is gaining share. With oat milk's clean label, simple ingredients, superior mixing in coffee, and broadly appealing taste profile we expect it to be the #1 plant-based milk. SunOpta produces a variety of plant-based milk products, but oat milk's supply constraints and growing demand provide capacity investment opportunities. SunOpta’s growth within plant-based outpaced the market’s growth. The path for the share price to double from here is recession resistant and does not depend on multiple expansion. EBITDA doubling by 2025 follows the secular growth of plant-based milk and oat milk taking share within the category.
Energized (CELH)
Celsius Holdings reported Q4 EPS of $.10 vs. consensus expectations of $.15 due to higher SG&A spend. Revenue growth of 71% was 3% below expectations. Revenue in North America grew 74% while International growth was 38%. There was a $15M pull forward from the distributor build ahead of the PepsiCo launch.
According to Nielsen in the four-week period that ended January 28, sales increased 136% compared to the energy category’s growth of 17.1%. According to SPINS, the company’s market share within energy drinks increased by 3.0% points to 6.4% in the four weeks that ended January 29. The ACV increased to 89.7% from 59.6% in the MULOC channel with PepsiCo’s distribution, while in C-stores the ACV grew to 89% from 46.3%. Celsius has several drivers of top-line growth including: new retailers, cooler rollout, launching nationwide in retailers with regional distribution, shelf space expansion, new channels such as food service in colleges, and international distribution with PepsiCo.
Gross margins expanded 450bps YOY to the highest level in the past two years. Management expects continued improvement with efficiencies. The efficiencies include shipping straight from co-packers, improving waste, scale leverage, vertically integrating, and enhancing club store packing.
The company recorded an expense of $37.6M for the termination of its distribution agreements being replaced by PepsiCo. SG&A spending excluding the termination expenses more than doubled to $52M from $25M. $15M of the growth was spent “to overinvest in marketing support” ahead of the distribution expansion. Adjusted EBITDA was $13.4M, growing 23% YOY. We have no problem with the step up in SG&A spending with the rapid distribution growth Celsius needs to invest in demand creation.
We recently added Celsius to the Best Idea Long list. Celsius is carving a niche in the growing energy drink category, but also bringing in new consumers. Celsius has aligned itself with healthy and better-for-you attributes that extend well beyond young consumers and the gym. Competitors are responding, but brand associations work against them and for Celsius. We see the niche becoming a significant portion of energy drinks.
Bixby (WEST)
Westrock Coffee announced the acquisition of Bixby Roasting, a specialty roaster with momentum in the influencer-led brand sector. The acquisition includes a roasting facility in Los Angeles. As Westrock continues to build out its capacity the company is adding some internal demand drivers that can plug into its production capabilities.
