We are hosting our weekly Consumables Show today.
EVENT DETAILS:Date & Time: Monday, October 16, at 12 PM ET. Webcast & Slides: CLICK HERE (refresh shortly before the call). |
Every Monday at 12 PM ET, our Consumables Team will be hosting a live event where we will go through Timely and Topical events/data that have occurred in our respective industries and preview the week to come. We hope that you can grab your lunch and join us as we break down the Restaurant, Consumer Staples, and Cannabis space.
We will explore a number of topics, including recent position monitor changes, top questions from client meetings, most frequent inbounds, pushback on our most recent calls, and updates on some of our best ideas.
2024 Themes Call
We are presenting a “too early” 2024 themes black book. The XLP has declined 12% in the past quarter. The threat from GLP-1 has been foremost on the minds of investors, with the rapid adoption leading to a dramatic reduction in food and beverage consumption by some patients. However, GLP-1 drugs are not the only reason behind the underperformance of the Consumer Staples sector. Higher interest rates, unit volume declines, growing private label share, and a weaker consumer outlook are also responsible for the contraction in the sector’s valuation multiples.
We will explore a number of topics that look to be top of mind in 2024, including:
- Top line outlook – why estimate revisions will be down.
- Margin outlook – why estimate revisions will be down.
- GLP-1 – why the threat is irrefutable for now.
- Historical valuations – can we look to historical valuations for a floor?
- Unit volumes – why the
- Higher interest rates – how it changes the group’s valuation bands.
- Private label share – is the threat larger than it was pre-pandemic?
- Consumer spending – how the timing of numerous headwinds has set up a perfect storm.
With the headwinds outnumbering the tailwinds, the sector appears un-investable. With a longer duration, investors may be presented with the best entry point for certain Consumer Staples companies since the initial pandemic outbreak. We are focused on companies with secular growth opportunities, limited exposure to sector headwinds, large TAM opportunities, and management teams with the right strategies and brands to succeed over a multi-year duration.
Event Details:
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Frozen fruit sale (STKL)
SunOpta announced the sale of its frozen fruits business for $141M, including a promissory note of $20M. Included in the sale are the primary assets of the business, including two production facilities as well as the inventory. On a trailing 12-month basis, the business had revenue of $263M and EBITDA of $15M. On a forward basis, the business likely would have had losses if the interest expense for the inventory was netted against the income. The frozen fruit business was a drag in several ways – margins, growth, valuation multiple, and leverage. SunOpta’s leverage improves dramatically with the sale to just above 2x forward EBITDA. That provides capacity for a share repurchase plan or more growth capital.
Former CFO Scott Huckins’ compensation package at Reynolds will include salary and incentive bonuses up to $2.5M in the first year and $2M in signing bonuses and stock grants. In 2022, his compensation was $2.6M at SunOpta, with incentive payments ranging from 102%-111% of the target based on performance measures. In our opinion, the compensation package comes down to which stock performs better in the future.
Beer shipments fall again (STZ)
Domestic tax paid shipments from breweries decreased 5.1% in August YOY, according to the Alcohol and Tobacco Tax and Trade Bureau report. YTD shipments have decreased 6.2%. February was the only month this year that shipments did not decrease YOY. The top five states contributing to the YTD declines include California, down 7.2%; Texas, down 2.8%; and Florida, down 3.7%. Import shipments decreased 5.9% in August after seeing the strongest month of shipments in July. YTD overall imports have decreased by 0.3%, driven by Mexican beer import growth of 2.6%. Constellation Brands is one of the bright spots in beer this year.
