Coming together in Q4 (STKL) – Buy SunOpta
SunOpta reported Q4 EPS of $.05 vs. the consensus estimate of $.02. Revenue grew 13.7% with volume/mix growth of 14.7% and price down by 1%. Beverages and broth revenue grew 19%. The growth was driven by oat milk and creamers, 330-ml protein shakes, teas, and fruit snacks. Partially offsetting the growth was a decline in the sale of the base plant-based ingredients as the company used more of it internally. Management estimated that the plant-based milk market, including both tracked and untracked channels, grew by MSD% in the quarter. Fruit snacks grew 31%. The company disclosed that it sold its fruit bowl business for 6M.
Gross margins contracted by 50bps due to 80bps of higher depreciation from the new equipment. Operating margins expanded by 70bps.
Management reaffirmed revenue and EBITDA guidance for 2024. Management reiterated the goal of paying down debt until leverage is reduced to 3x, projected in the 2H. With the sale of the fruit bowl business, the company continues to narrow its focus. 80% of SunOpta’s revenues are tied to the untracked channel, making the scanner data less relevant. SunOpta is growing 3x faster than the plant-based milk market, which is growing MSD%, which should provide sufficient visibility to investors. SunOpta shares can still double from here.
Across the board (RKT)
Reckitt reported a 2.5% shortfall in EPS for the year. Q4 LFL revenue decreased by 1.2% with price/mix of +3.1% offset by volume declines of 4.3%. Price/mix was up 9.2% in Europe/ANZ compared to only 1.1% in North America. Each segment missed sales and margin expectations. Hygiene LFL increased by 5.2%, with volumes down by 2.6% and price/mix growth of 7.8%. Health LFL sales decreased by 2.0%, with volumes down by 2.2%, impacted by a HSD% seasonal OTC decline and price/mix growth of 0.2%. Non-seasonal OTC products increased by MSD%. Nutrition LFL revenues decreased by 14.8% due to a double decline in North America. Volumes decreased by 14.3% as it lapped competitor infant formula shortages last year.
Management’s outlook for 2024 is for LFL revenue to grow 2-4%, driven by MSD% growth for its Health and Hygiene categories. The Nutrition business is expected to decline by MSD% to HSD% with a return to growth late in the year. Operating margins are expected to expand.
Reckitt is not undertaking a major process change at its infant formula plants that is hitting the P&L in one quarter, but it is adjusting to the new FDA guidelines. Chipotle’s customers did not do an overnight adoption of best practices either, but many restaurants adopted part of the learnings. Perrigo is taking the approach of making the changes as soon as possible.
Q4 Catching up on pricing (MNST)
Monster Beverage reported Q4 EPS of $.38, in line with consensus expectations but aided by a lower tax rate. Revenue grew by 16.1% in constant currencies. The energy drinks segment grew by 16.5% in constant currencies. The strategic brands segment grew by 7.7% in constant currencies. The alcohol segment grew by 30.6%.
Gross margins expanded by 270bps, driven by price increases, lower freight, and input costs. Operating expenses deleveraged by 100bps. Distribution and selling expenses deleveraged by 20bps. G&A expenses deleveraged by 90bps.
Management said they are still looking for further price increases in the U.S. and internationally. The company was cautious in raising prices despite significant input cost inflation. Now that the company has exercised its pricing muscles and has not seen elasticity impact its plans, Monster continues to regain its margins. We have a high level of confidence in continued pricing and margin gains.
Supermarket decline (WMK)
Weis Markets comparable sales adjusted for the extra week and excluding fuel increased by 0.2% in Q4. EPS in Q4 was $.76, down from 1.07 in the prior year. Weis Markets operates 197 stores in the Mid-Atlantic region. The smaller grocers are showing challenges on the top line as inflation has moderated and investments in traffic drivers are needed.
