CEO retirement (STKL)
SunOpta announced the retirement of CEO Joe Ennen after leading the company for the past five years. The board appointed Brian Kocher as the new CEO. He was previously Calavo Growers's CEO and Chiquita's interim CEO. Mr. Kocher has a background in commodity distribution businesses, not exactly beverage co-manufacturing. The company reaffirmed its outlook for Q4 and 2024.
Joe Ennen’s retirement has been months in planning as it was announced in conjunction with the naming of the new CEO. Mr. Ennen’s retirement follows the resignation announcement of CFO Scott Huckins by less than two months. In retrospect, Scott Huckins’ resignation likely reflected the planned retirement of Joe Ennen and the search for a new CEO. Mr. Ennen’s retirement leads to the vesting of his performance shares coming more than one year after the May 2022 grant.
Joe Ennen and Scott Huckins oversaw the transformation of SunOpta from a combination of numerous, not very related businesses with a large commodity mix, to a plant-based beverage co-manufacturer with limited commodity exposure and a healthy balance sheet. With the sale of the commodity frozen fruit business and the new Midlothian plant up and running, significant strategic and operational initiatives are behind it. The new management team staying on the outlined strategy should see an adjusted EBITDA of 150M, FCF of 100M, and a much higher share price. SunOpta is a best idea long.
More headwinds for the customers (UNFI)
United Natural Foods reported a loss per share of $.04 in FQ1 vs. consensus expectations of -$.32. The upside was driven by better margins while revenue was below expectations. Overall revenue grew by 0.3%.
- Chains decreased 1.2%
- Independents decreased 2.5%
- Supernatural increased 6.5%
- Retail decreased 1.1%
- Other increased 1.7%
Management cited the difficult environment with consumers managing higher prices by shifting away from the grocery channel, leading to negative volumes. Management expects inflation to decelerate from 3% in FQ1 to 1% by the end of the fiscal year.
Gross margins contracted 110bps excluding LIFO charges, improving from -170bps sequentially. The company will continue to lap the elevated procurement gains until the latter part of FQ2. Management cited progress in dealing with shrink with FQ1 at the lowest level in the past seven quarters. Operating costs deleveraged by 20bps YOY. Net debt increased by 336M from the prior quarter due to seasonal inventory build.
Management reaffirmed a wide range of guidance for the year -$.88 to -$.38. Management’s guidance is back half weighted. The operating environment will become more difficult for supermarkets in the coming quarters with negative volumes and consumer headwinds. UNFI is on our short bias list.
Weakening traffic (SFM)
Supermarkets have been losing share in food retail to discount stores and warehouse clubs. Traffic to Sprouts Farmers Market declined by 3.6% YOY in the week that ended November 26. The traffic trend in October and November was 2 to 3% points weaker than in July through September. With inflation and traffic decelerating, positive SSS will depend on the units per transaction trend to reverse.
