The sauce has volume growth (LANC)
Lancaster Colony reported FQ1 EPS of $1.59 vs. consensus of $1.61. Total revenue increased 8.5%, accelerating from 0.5% growth sequentially. The company lapped a pull forward of sales last year due to ERP implementation that shifted $25M or 6% out of FQ1 last year.
- Retail segment revenue increased 8.5%. Adjusting for the sales shift last year, pounds shipped increased 1.4%. POS sales of Chick-fil-A sauces increased 17.6% to $41M, Olive Graden dressings increased 9.6% to $39M, and Buffalo Wild Wings sauces increased 25.9% to $21M. NY Bakery and Sister Schubert’s gained share in the quarter. The company’s refrigerated dressings now have the leading share at 28%.
- Foodservice segment revenue increased 8.4%. Adjusting for the sales shift last year, food service volumes increased by 1.4%.
Gross margins expanded 30bps YOY and 310bps sequentially. Higher sales volumes, continued favorability in commodity pricing, and cost savings drove gross margins. Pricing added 140bps to gross margins. Management said they do not anticipate a significant impact from inflationary costs in Q2. SG&A expenses grew 4.4%, reflecting growth, a more normalized level of promotions, employee expenses, and higher brokerage costs partially offset by lower ERP expenses.
The company’s commodity basket is now neutral, no longer necessitating price increases. With limited pricing going forward, Lancaster Colony’s top-line driver is the volume growth of LSD%. Visibility is from the frozen bread business continuing to expand its share, and the licensed business is lapping ~28% growth with 30% growth this year.
Another Q from the gift horse (TAP)
Molson Coors reported Q3 EPS of $1.92 vs. consensus expectations of $1.56. Overall revenue grew 11.0%, with volume growth of 3.2% and brand volume growth of 1.1%. Revenue per hl grew 7.6%. Consolidated brand volume increased 1.1%. Americas brand volume increased 3.6%, led by 4.5% in the U.S., while Canada was up 0.2%. EMEA and APAC brand volume decreased by 5.2%.
- Americas – Volumes grew 6.6%, and price & mix increased by 4.6%. Sales per hl increased 4.3% in Q3. U.S. depletions increased 4.5%, decelerating from 8.7% sequentially, but compared to the pull-forward ahead of last year’s price increase and one less selling day. Coors Light volumes grew DD%, and Coors Banquet volumes grew nearly 30%, while Miller Lite grew HSD%. After raising prices by ~5% in the U.S. last fall, the company is raising prices by 1-2% (its historical average). Miller Lite gained 7% more shelf space, while Coors Light gained 6% more shelf space from fall resets.
- EMEA & APAC – Volumes decreased by 5.5%, and brand volumes decreased by 5.2%. Price/mix increased by 15.9%. Fx was an 8.8% benefit. Per hl, the segment grew 16.8% in price mix.
COGS per hl increased by 2.6%, with the Americas down 1%. EMEA and APAC COGS per hl was up 15.8% due to materials and manufacturing costs. 85% of the COGS increase came from higher material and manufacturing costs. COGS inflation will still be a headwind in Q4 in EMEA & APAC. The company is spending an incremental $100M in marketing in the 2H of the year. G&A expense increase reflected incentive compensation.
Management narrowed revenue growth guidance to the high end of the range. Molson Coors may be one of the few beer manufacturers that describes the beer category as “healthier than projected.” For Q4, management expects volumes to grow faster than sales with healthy distributor inventories, planned maintenance downtime, and the larger impact of a contract manufacturing agreement expiring. There will be less pricing in the U.S. and EMEA & APAC. EBIT is now expected to grow 32-36% from 23-26% previously.
Management has made their best case to demonstrate their ability to hold/build on this year’s windfall share gains. The spring resets will be a critical aspect of that effort, along with the increased marketing spend. In the meantime, the company has deleveraged and trades at a very attractive 10% FCF yield. Molson Coors is on our long list.
October surprise (MNST)
Monster Beverage reported Q3 EPS of $.41, $.01 above consensus expectations. Revenue grew 14.3% (+16.1 Fx adjusted), accelerating from 12.1% sequentially. International sales grew 20.2%. According to Nielsen, in the 13 weeks that ended October 21, the energy drink category grew by 9.2%, while the company’s brands, excluding Bang grew by 6.7%. Including the alcohol brands, sales in October increased 25.8% YOY, and excluding the alcohol brands, sales increased by 25%.
Gross margins expanded 170bps or 210bps, excluding the Bang inventory step-up, driven by price increases, lower freight, and aluminum costs. Operating costs were nearly flat as a percentage of sales. Distribution costs were 50bps lower. Operating margins expanded 180bps.
The company still plans to increase prices in several international markets this year. October sales were well above Q3 trends, boosted by the Bang acquisition and strength in non-measured channels. The Bang acquisition out of bankruptcy has seen a much quicker order ramp-up from distributors and customers.
