Black Book today (K, KLG)
Kellanova is a new Best Idea Long. The Kellogg Company will soon split WK Kellogg, its North American cereal business, from Kellanova, its global cereal, snacking, frozen foods, and emerging markets portfolio.
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EVENT DETAILS:
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Our Black Book will go through in detail an analysis of the following:
- Spin-off details
- The post-spin outlook
- Margin outlook, input cost pressures, and pricing
- Opportunity in snacks
- M&A potential
- International opportunity
- Competitive landscape
- Demand risk from GLP-1 drugs
- Model variance
- Valuation breakdown
Decanted at the top (NAPA)
The Duckhorn Portfolio reported FQ4 EPS of $.15 vs. consensus expectations of $.13. Sales grew 28%, with wholesale up 20% and DTC up 75%. DTC growth was driven by a Kosta Browne offering shift in the quarter. Wholesale accounts grew 10%. California direct was up 7.3%. Volume grew by 10.6%, and price/mix increased by 18%. Gross margins expanded by 480bps, driven by the Kosta Browne timing. SG&A grew 9.8% YOY, mostly due to compensation expense growth. EBITDA margins expanded by 560bps.
Management guided EPS for F2024 to be between $.67-.69. Revenue is expected to be between $420-430M (4-7% growth) vs. consensus expectations of $155M, mostly driven by M-HSD% volume growth. For Q1, management expects sales to decline M-HSD% as the company laps strong wholesale growth, with growth picking up in Q2 due to shipment timing. Gross margins are expected to contract 50bps in F2024 due to pricing normalizing.
CEO Alex Ryan is retiring. Deirdre Mahlan, who has been on the board for nearly three years, will serve as the interim CEO while a search for a new leader commences. Alex Ryan has worked at the company for 35 years and has been President of the company since 2005 and CEO since 2011. The retirement is unplanned, and the stock price decline since going public was also not part of the plan. The difficult question has always been what would be next for the company when Decoy slowed. Maybe Alex Ryan saw the day coming earlier and did not have an answer the board liked? We took the company off our Best Idea short list recently, thinking about the strategic value being above the market value. A sale seems more likely without Alex Ryan at the helm.
Halloween plans (HSY)
According to a survey from Vibenomics, a Mood Media company, 53% of respondents intend to purchase their Halloween shopping in physical stores. 30% of respondents plan to purchase items online and in-store. 15% said they would shop online and have the items shipped, while 2% said they would shop online and pick up curbside. 82% of respondents said they would purchase their Halloween items at big box retailers, followed by online retailers at 45%, grocery stores at 37%, dollar/discount stores at 36%, drugstores at 21%, and home improvement stores at 15%. 88% said they intended to purchase candy, while 82% said they would purchase seasonal food and snacks. 59% said they would purchase Halloween decorations for their home, while 51% said they would purchase costumes. 71% of respondents said that in-store promotions are a top factor in their purchase decision. According to the NRF’s survey, Halloween spending is expected to reach a record $12.2B, up 15% from last year. Spending on candy is expected to increase 16% to $3.6B, but spending on decorations is projected to be $3.9B. More people, 73%, plan to participate in Halloween-related activities, up from 69% last year. Halloween typically represents a quarter of the candy industry’s annual revenue. According to Rite-Aid, nearly 2/3 of its Halloween candy sales are chocolate products. 45% of the purchases are in the week before the holiday, with each day increasing closer to the holiday. Halloween is on a Tuesday this year compared to Monday last year, limiting a comparison impact. Hershey’s capacity is 5% compared to the prior year, positioning it to take advantage of the demand growth for Reese’s in particular. We recently presented our Black Book on Hershey. For the replay and materials CLICK HERE.
