Capacity enabled growth (BRBR)
BellRing Brands reported FQ4 EPS of $.41, slightly ahead of consensus expectations of $.40. Revenue and EBITDA were slightly above expectations. Sales grew 24.6%, with volume growth of 19.4% and price/mix of 5.2%. Premier Protein sales grew by 30.2%, with volume growth of 21% and price/mix of 9.2%. Premier Protein shake net sales increased by 28.9% with volume growth of 21.2% and price/mix of 7.7%, accelerating from 27% growth sequentially. With incremental shake production coming online from SunOpta, the company was able to add promotions and reintroduce certain flavors. Dymatize sales decreased by 0.9%, driven by a 0.7% decrease in volume as the company lapped the trade inventory build.
Premier Protein RTD shakes grew by 36.1% in the 13-week period ended October 1, according to Circana, accelerating from 26.8% in the 13-week period ended July 2. Dymatize powder products grew by 38.4% and 38.6% in the same respective periods.
Gross margins expanded by 60bps YOY due to improved pricing offsetting cost inflation and incremental promotions, improving from 210bps of YOY contraction sequentially. SG&A expenses increased by $9M and leveraged 100bps as a percentage of sales.
Management expects sales growth between 10-15% in F2024. For EPS, management expects EBITDA growth between 6-15%. Revenue and EBITDA guidance bracketed consensus expectations. Capex is only expected to be $2M. We added BellRing Brands to our Long Bias list, acknowledging the co-man capacity expansions enabling revenue growth for RTD shakes. GLP-1 drugs could be a positive development for BellRing Brands, rather than a risk. BellRing Brands has among the best volume growth prospects in CPG.
U.K. alcohol taxes (TAP, DEO)
In August, the U.K. raised the alcohol tax rate by the largest amount in nearly 50 years. Wine with an ABV of 11.5-14.5% (80% of wines) had a 20% duty increase. The U.K. government is already proposing an additional 8.9% increase. Currently, 61% of a bottle of wine priced at £6 goes to the government in excise and VAT taxes. The tax increases are raising the retail price of wine. According to Nielsen, the average price of a bottle of wine in the U.K. has risen 9.3% in the two months since the August duty increase. The spirits industry saw excise taxes increase by 10% in August, raising the price of a bottle by £1.50. The average price of a bottle of vodka in September rose by 14% to £16.80, and the average price of a bottle of gin rose by 10% to £17. The Wine and Spirit Trade Association reported that spirits sales have fallen by roughly 20% in the past 28 days as a result of the tax increase, while wine has seen a double-digit decline. Drinks with ABV below 3.5% saw a decrease in duty while drinks poured on tap saw an eleven pence reduction in taxes. For the global breweries, the U.K. market is an on-premise market.
BioSteel burn (PEP)
A Canadian court has approved the sale of BioSteel to DC Holdings and the manufacturing assets to Gregory Packaging. Canopy Growth (covered by Howard Penney), which owned 90% of BioSteel, put the company into a court-supervised sale process. DC Holdings is Dan Crosby’s holding company that does business as Coachwood Group and owns Canadian Protein, a sports nutrition company. Gregory Packaging makes SunCup juice and snack cartons.
BioSteel’s revenue in FQ1 was $24.2M, up 137% YOY. Last year, the NHL replaced Gatorade as its sports drink partner. Canopy estimates that its sports drink segment burned $11.2M in cash per month. BioSteel said it owes $9M in sponsorship agreements between October and March next year, which likely understates commitments to the NHL. Canopy said it spent roughly $272M on BioSteel since it was acquired. The SEC investigated BioSteel for overstating sales earlier this year which ultimately led to the exit of several executives. Gatorade, BodyArmor, and Powerade controlled 98% of the sports drink market last year. Prime Hydration jumped to 6% market share this year. The sports drink industry is notoriously difficult to enter, even though Prime Hydration has made it seem easy. Paying for athlete endorsements can quickly saddle a brand with costs spiraling out of control as Under Armour can confirm.
