SNAP impact (KR, WMT)
According to Morning Consult’s monthly Consumer Spending & Inflation Report groceries are the second-largest spending category in the average consumer’s budget. Households earning less than $50,000 reduced their monthly spending on groceries month over month for the past three months as seen in the chart below. The expiration of emergency pandemic SNAP payments in March was likely the catalyst for the reduction in spending. Nearly half of adults from households that earn less than $50,000 per year said they received SNAP benefits in the past month. Food at home inflation averaged 7% YOY over those three months.
According to Kroger’s data and media company 84.51°, 37% of SNAP recipients who shop at Kroger said they are spending more at dollar/value stores since the end of the emergency benefits. 43% said they chose their grocery store based on which has the lowest prices. 62% said the cancellation significantly impacted their budgets.
Numerous food retailers cited increased headwinds for the consumer in Q1 and nearly every company reported decelerating SSS. The companies that have reported strong absolute growth rates (above HSD%) in Q1 have cited benefits from consumers trading down, like Walmart.
Off-premise beer sales accelerate (STZ, TAP, BUD)
Off-premise beer category sales increased 0.7% for the four-week period ended June 17 according to NielsenIQ while volumes decreased 4.1%. Sales and volumes accelerated compared to the YTD growth of 0.2% in dollars and 4.6% decline in volume.
Several subcategories saw acceleration including:
- Imports grew 9.3% in dollars and 4.5% in volume in the last four weeks, accelerating from +6.9% and +2.8% respectively YTD.
- Premium regular grew 1.9% in dollars and -3.3% in volume in the last four weeks, accelerating from -3.2% and -7.3% respectively YTD.
- Below premium decreased 0.5% in dollars and -6% in volume, accelerating from -3.2% and -8.2% respectively YTD.
- Craft grew 1.6% in dollars and -2% in volume in the last four weeks, accelerating from -3.7% and -7.4% respectively YTD.
- FMBs ex. hard seltzer grew 19.7% in dollars and 15.7% in volume, accelerating from +10.4% and +5.7% respectively YTD.
Could the media attention on Bud Light be helping the beer category while not helping Bud Light? Is off-premise benefiting from less away from home visits?
It’s not over (GIS)
At the headline level General Mills had another good quarterly report. General Mills reported $1.12 vs. $1.07 consensus estimate and the initial F2024 guidance was above consensus expectations. Below the headlines there were a couple of issues like volume declines being larger than expected that were the focus of attention on the call.
Sales decelerate
Sales of $5.0B were below expectations of $5.18B. Organic sales growth was 5.0%, decelerating from 16% sequentially. Organic volumes declined 6% while price/mix increased 11%. N.A. Retail grew 5% organically. N.A. Foodservice grew 1% organically. International grew 6% organically. Pet grew 7% organically. Pet dry food grew double digits, treats grew HSD%, and wet food decreased HSD%.
Management said there was inventory destocking at retail, particularly at a few large retailers. Nielsen-measured retail sales growth was 10%. Management expects price increases to be less of a headwind for volumes in F2024. Regarding elasticities, management said, “It’s pretty clear that volume elasticities have increased and it’s something that we expected and we baked into our guidance already.”
Margin upside
Gross margins expanded 120bps, less than the 240bps in FQ3. Input cost inflation is expected to be 5% in F2024, much less than 13% in F2023. N.A. Retail operating profit grew 2% in constant currencies. N.A. Foodservice operating profits decreased 10% YOY due to higher input costs and higher SG&A partially offset by positive price/mix and higher volumes. Pet operating profit grew by 18% due to positive price/mix while higher SG&A expenses were a headwind. International operating profit decreased by 9% due to higher input costs, lower volume, and higher SG&A partially offset by positive price/mix.
Management guided F2024 organic net sales growth of 3-4%. Management expects input cost inflation of 5% driven primarily by labor inflation. Operating profit is expected to grow by 4-6%. Adjusted EPS is expected to grow 4-6%, implying a range of $4.47-4.56 vs. consensus expectations of $4.48.
Cash is a lever for growth
General Mills is raising the dividend by 9%, representing a forward yield of 3.1%. Share repurchases are expected to reduce the outstanding count by 2%. Capex is expected to be roughly 4% of sales. Management sees debt leverage of 2.7x providing flexibility for strategic acquisitions.
This was not the end of its earnings beats, but the cycle of cost inflation and price increases will continue.
