2024 Themes Call Today (LW, CAG, SJM, KHC)
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, and the shorts have the upper hand for now.
- Historical valuations – can we look to historical valuations for a floor?
- Unit volumes – why the volume declines remain a headwind for group multiples, but not earnings.
- 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 are 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. We will make our case for why the current sell-off is mostly multiple rather than earnings and what the setup for a relief rally will look like.
Event Details
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We are making several changes to our position monitor to reflect what we anticipate to be a longer duration headwind from GLP-1 drugs. We are adding Conagra, JM Smucker, and Kraft Heinz to the short bias list. We anticipate an opportunity to add the companies to the Short list at a better price in the future. We are also reshuffling several of our Best Idea longs to reflect near term risk reward with GLP-1s and the other headwinds for the sector balanced against our projections for the next year. Lamb Weston moves to the top of our Best Idea long list, followed by the energy drink companies Monster Energy and Celsius Holdings, which have limited customer exposure to GLP-1s.
Distributor suit (STZ)
Quality Beverage, Massachusetts's largest AB InBev distributor, has filed a lawsuit against Constellation Brands. Quality Beverage has agreed to be acquired by Martignetti, a wine and spirits wholesaler, for $192M. Quality Beverage alleges that Constellation Brands' refusal to approve the sale of its brands interferes with its acquisition. Constellation Brands says it will only agree to its brands being sold to Burke Distributing or Atlas Distributing, the two Molson Coors distributors in Constellation’s network in the state. According to Quality, the loss of the Constellation Beer brands would reduce the acquisition price by 18%. Constellation prefers its distribution to be simplified and consolidated and if possible, not in the AB InBev network.
Wholesaler Support (BUD)
Anheuser-Busch said it would provide support to its wholesalers with several actions, including:
- financial support – incentive payments will continue through Q1
- freight/fuel surcharge reimbursement - surcharge reimbursement will continue through Q1
- extended credit – additional credit will be extended through Q2
- market share recovery incentive – beginning in Q2, a market share recovery incentive will be paid through the end of the year
BUD has to show its support to its wholesalers while the retail channel contemplates shelf space resets. Laws in some states limit what support the brewer can give. The wholesalers need the support, but it’s not the middlemen’s actions that have hurt sales. There is only so much they can do when the problem is on the demand side.
