Ringing in the New Year (BRBR)
BellRing Brands reported FQ1 EPS of $.43 vs. consensus expectations of $.40. The upside was driven by upside in sales and margins. Management cited some customers increasing their orders before the New Year to feature Premier Protein in promotions. Total sales grew by 18.7%, with volume growth of 19% and price/mix down 0.3%. Premier Protein sales grew by 18.9% with volume growth of 19.5% and price/mix decline of 0.6%. Dymatize sales grew by 20.9%, driven by volume growth of 32.4% and price/mix decline of 11.5%.
According to Circana, sales of Premier Protein RTD shakes grew 29.3%, Premier Protein powders grew 66.3%, and Dymatize powder grew 15.7% during the quarter. Last quarter, management said they would return to a normal cadence of promotions with additional supplies coming online. Pricing was said to be a low to mid-single-digit headwind for the year.
Gross margins expanded by 80bps as input cost deflation was partially offset by higher promotions. SG&A deleveraged by 80bps.
Management raised guidance for revenue from 1.83-1.91B to 1.87-1.95B and EBITDA from 360-390M to 375-400M. Capex is still only expected to be 2M, a testament to the company’s outsourced manufacturing approach. Stay tuned for management’s updates regarding promotions, marketing, and new product innovations on the call.
Low-income eating at home (WMT, MCD)
McDonald's management said on their conference call yesterday, “As I’ve talked about on prior calls, particularly among the low-income consumer, there’s some transaction size reduction that we’re seeing.” “As you think about 2024, certainly inflation is going to be less, probably in the low-single-digit inflation in 2024, and that will be consistent with where we end up on pricing.”
“Where you see the pressure with the U.S. consumer is that low-income consumer, so call it 45,000 and under. That consumer is pressured. From an industry standpoint, we actually saw that cohort decrease in the most recent quarter, particularly as eating at home has become affordable. There’s been much less pricing that has been taken more recently on packaged food. So, you’re seeing that eating at home is becoming more affordable. That, I think is putting some pressure from an IEO (Informal Eating Out) standpoint on that low-income consumer.”
I wouldn’t call it affordable; I would say more affordable on a relative basis. The differential between the rate of inflation between food at home and away from home has widened to its greatest in years as seen in the chart below. With LSD% inflation projected away from home, the differential will still favor food at home but narrowing.
Oat milk in the news (STKL, OTLY)
The Independent and the Wall Street Journal published articles yesterday on oat milk. The Independent wrote about how a French biochemist known as the “Glucose Goddess” said oatmilk leads to a big glucose spike. The Wall Street Journal wrote about the regulatory battle between the dairy milk and plant-based milk industry over the latter’s use of the term “milk.”
Nutritionally, oat milk has small tradeoffs compared to dairy milk. Dairy milk is higher in fat, protein, and calories, while oat milk has 58% more carbohydrates. Dairy milk has 3x more sugar than oat milk. Plant-based milk also fortifies their drinks with vitamins or proteins to deliver a product that meets perceived customer needs.
Last year, the FDA proposed that plant-based milk beverages can still use the “milk” label, but they should contain voluntary labels explaining the nutritional difference to cow’s milk. The proposal pleased no one and is unusual in CPG labels.
Health and nutritional advice on social media has nearly as many different opinions as people. The most critical factors are taste, dietary/health needs (lactose-free, gluten-free, etc.), perceived healthiness, environment, clean label, lifestyle, and not necessarily in that order after taste. Oatly and Califia have unsweetened versions (Oatly: 6g of carbs and no sugar and Califia: 12g of carbs and no sugar), which could gain share if carbs and sugars were a higher priority. The secular movement away from dairy milk is decades in the making. Stocking in refrigerated coolers adjacent to dairy milk is the most critical factor, as customers are highly aware of the product. Oat milk beats out soy milk and almond milk in taste, as well as estrogen concerns and clean labels, respectively.
