Idea Hunt (KDP, FLO, IFF, UNFI)
We are hosting our "Value or Value Trap?" Idea Hunt today at 12:30 PM ET. In this Idea Hunt, we will focus on four companies with share prices that have lagged the broader group.
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Today at 12:30 PM ET CLICK HERE to watch the webcast and download the presentation. |
First Take:
- Flowers Foods (FLO): is the second-largest producer and marketer of packaged bakery foods in the U.S. It owns many of the best-known bread and bakery brands. The company performed well during the pandemic, but inflationary price increases led to trade down into private label.
- International Flavors & Fragrances (IFF): is a creator and manufacturer of food, beverage, health & biosciences, scent and pharma solutions. IFF's products are sold principally to dairy, meat, beverage, snack, baked food, and personal care manufacturers. Consumer demand slowdown, customer destocking, and passing through price increases are current challenges to the business.
- Keurig Dr Pepper (KDP): is a manufacturer and distributor of a variety of beverages. It operates four segments: coffee systems (K-Cup systems), packaged beverages, beverage concentrates, and Latin American beverages. The beverage brands include Dr Pepper, 7UP, Canada Dry, Schweppes, and more. Price increases matching commodity inflation and other cost increases have led to volatility in results and margin pressure. The Keurig business has had volatility driven by comparisons and launches. Investors remain concerned about price elasticity and competitor pricing.
- United Natural Foods (UNFI): is the largest distributor of natural, organic, and specialty foods. Headwinds to the business include higher commodity inflation, reduced government benefits, higher retail shrink, and lapping procurement gains.
We are adding Flowers Foods to our Long Bias list. We are adding United Natural Foods and International Flavors & Fragrances to our Short Bias list. Keurig Dr Pepper remains on our Long Bias list. The updated position monitor:
May CPI (TSN, BRCC)
Food at home CPI increased 5.8% YOY in May, decelerating from 7.1% in April. The two-year average decelerated 0.1% to 8.9%. Rolling forward the two-year average trend that has effectively been in place since September would result in food inflation at 4% by the end of the summer.
Meats, poultry, fish, and eggs increased 0.3% in May, decelerating from 2.8% in April. The meat category led food at home inflation trends since the pandemic outbreak. The meat category appears to be leading food categories to deflation.
The coffee category has seen the largest deceleration over the past two months. The CPI for coffee increased 4.8% in May, decelerating from 6.6% in April and 10.3% in March.
The perimeter of the grocery store will be deflationary in the 2H of the year. Disinflation, demand destruction, and capacity have been headwinds for meat producers. Coffee inflation has been a significant headwind for margins for the coffee manufacturers like Black Rifle Coffee Company.
