Cheaper chicken (PPC, RGF)
Boneless chicken breast prices have fallen 52% YOY, but are still 20% higher than the five-year average as seen in the chart below. Leg prices are down 6% YOY while wing prices are 59% lower YOY. Retail prices remain elevated at +12% YOY.
Food disinflation and even deflation is coming first from the perimeter of the grocery store, while center store categories are lagging. Lower chicken prices are a tailwind for restaurants broadly as well as Real Good Foods, a low carb/high protein food manufacturer.
Transportation costs drop (WMT)
According to the Logistics Managers’ Index transportation, prices in February fell at the fastest rate recorded in the past six and a half years of its history. The index is a diffusion index with above 50 denoting expansion, while below 50 signals contraction. The index in February was 36.1, 5.9% points lower than in January. Higher transportation costs were felt by nearly every consumer staples company in 2021 and 2022, but 2023 will provide some relief.
Going concern? (APPH)
AppHarvest reported a Q4 loss per share of $.86 compared to consensus expectations of a $.38 loss. Revenue grew 45% YOY to $4.5M as three new facilities came online. Adjusted EBITDA was a loss of $24.1M vs. expectations of an $18M loss.
For 2023 management guided revenue to be between $40 and $50M, $4M below consensus expectations. EBITDA is guided to be a loss of $67 to $76M compared to consensus expectations of -$74M. Management said there is potential for positive adjusted gross profit in 2024. In 2025, management expects to achieve positive adjusted EBITDA for farm operations and ultimately positive EBITDA in 2026. Management’s initial expectations were for revenue to reach $270M in 2023 with EBITDA of $14M. Instead, the company had revenue of $14.6M while the EBITDA loss was $72M. AppHarvest ended the year with $54M of cash. Capex is expected to be $60-65M in 2023. Is AppHarvest a going concern? Waiting for the potential for adjusted gross profit to be profitable in 2024 is why the company should not have been brought public. The changes to the labor model is the latest domino to fall. Continuing to locate the farms in Kentucky would be next core strategic change, if the company were to open another facility.
