Something to cheer-io (GIS)
General Mills FQ3 results exceed top and bottom-line expectations. The company reported EPS of $.97 vs. consensus expectations of $.92. Organic sales grew 16% in Q3, accelerating from 11% in Q2. Organic volumes were flat.
- Pet recovered from Q2’s flat growth with growth of 14% in Q3.
- N.A. Retail organic sales grew 18%, driven by price and mix.
- Food service organic sales grew 19%.
- International organic sales grew 8% with strength across Europe and Australia and in distributor markets of Brazil and China.
Gross margins expanded 240bps, accelerating from +100bps in Q2, driven by positive price/mix and cost savings partially offset by mid-teen input cost inflation. Regarding COGS inflation and commodity prices management said, “It probably is an over-read to look just at the commodity softening on some of the key commodities and assume that there’s going to be a more benign inflationary environment.” Adjusted operating margins expanded 80bps, improving from +60bps in Q2. Increased marketing spending up double-digits and compensation expense deleveraged. The only segment with margin contraction was Pet. Pet operating margins contracted due to input cost inflation and capacity expansion, but pricing is expected to improve in Q4.
Management raised guidance further from the CAGNY update reflecting the stronger Q3 results and broad based momentum. Organic sales growth of 10-11% was raised from 10%. Adjusted operating profit growth was raised to 7-8% from 6-7% previously. Adjusted EPS growth was raised to 8-9% from 7-8%. Cost inflation is still expected to be 14-15% for the year and double-digits in the 2H. Management currently expects inflation MSD% inflation in F2024, mostly driven by labor and conversion costs. General Mills is on our Best Idea Long list. We see further upside to the shares with sales accelerating, margin expansion accelerating, and the Pet segment recovering.
Buy Now Pay Later for Groceries (WMT, KR)
The Adobe Digital Price Index shows that from January 2019 through February 2023, the cheapest pricing tier grew its share of sales significantly across multiple categories, including groceries up 35.6%. In 2022, the share of online purchases using Buy Now Pay Later (BNPL) grew 14% YOY. In the first two months of 2023, the BNPL order share was up 10% YOY. The online groceries’ share of BNPL purchases increased by 40%. “The rise of BNPL usage for groceries tells us that consumers are likely making bigger purchases online to take advantage of special promotions and stock up on staples,” said the lead analyst of Adobe Digital Insights.
There aren’t a lot of CPG promotions based on the size of the order that I am aware of. The main method consumers can save by buying in bulk is from the warehouse clubs, not BNPL. The rise in the latter suggests a stretched consumer. The disappearance of emergency COVID SNAP payments occurred in March, not during the two-month surge in BNPL. Walmart said it has seen a double-digit increase in tax refund checks used to pay for groceries. There are more signs of a stretched consumer budget for groceries.
Brewery sale (STZ)
Constellation Brands is selling a brewery it built in Virginia to New Belgium, owned by Kirin (KNBWY). The 259,000-square-foot facility can produce 125,000 barrels of beer, FMBs, or spirits-based RTDs. New Belgium is one of the few craft brewers seeing volume growth. New Belgium’s Voodoo Ranger brand family has been driving the growth. New Belgium and Bell’s Brewery which are both owned by Kirin are the eight largest brewer in the off-premise channel. In the first two months of 2023, sales have increased by 14.9% with volume growth of 8.8%. Constellation Brands will contract with New Belgium to produce the Fresca Mixed RTD line as part of a multi-year deal at the brewery. Constellation Brands built the facility for $48M in 2017 as part of the East coast manufacturing for Ballast Point.
