KMB – We removed Kimberly-Clark from the Short Bias list. The current momentum and conservative guidance have our estimates above consensus expectations.
LANC – Lancaster Colony’s shares have been weaker since Lamb Weston raised concerns about QSR sales slowing. Lancaster Colony’s sales to the food service channel are likely less impacted than Lamb Weston. For LANC, some deflation pass-through on pricing differs entirely from slowing top-line. LANC still has more GM upside, and it’s an interesting story, with half of its growth driven by Chick-fil-A.
RKT.LN – Moves lower on the Short Bias list. Reckitt Benckiser had a lot to prove and likely exceeded the minimum for now. We continue to see some destocking in cold & flu as retailers manage inventory levels in Q2.
SAM – Remains tenuously on the Short Bias list due to difficult industry trends for craft beer. Reported upside to EPS of $1. Depletions were flat, shipments slightly better, and Twisted Tea decelerated. The new CEO said attractive things about returning margins to where they should be. An investor can start to dream again.
TAP – Molson Coors remains on the Long Bias list. Investor sentiment is reluctant to own a beer company with reversing base effects. The company’s brands have the shelf space gains to grow the top line, but expectations assume velocity declines will offset it. Visibility in LSD% sales growth and MSD% EPS growth guidance for the year should improve despite a lackluster year for beer.
CLX – Clorox remains on our Long Bias list. Consensus expectations for Clorox’s organic growth is +3.6%. Clorox is lapping elevated price increases last year, which drove margin expansion. FQ3 will answer the question about how much of the upside in FQ2 was just delayed shipments from FQ1’s cyberattack. Visibility in margins is greater than it is in shipments. Investor sentiment is lower than the 26x P/E and 17x EV/EBITDA multiple, indicating an opportunity with sales and margin expectations being raised further.
SFM – Sprouts Farmers Market moves lower on our Short list. Traffic in the stores improved sequentially in Q1. Management guided Q1 SSS growth between 2.5-3.5% and EPS between $.98-$1.02. The partnership with Uber Eats should help the store's anniversary of other digital delivery rollouts. Our model suggests a modest upside to both SSS and EPS. We will look to move the company higher on the Short list when we can pinpoint competitive pressures or promotions increasing.
CHD – Church & Dwight remains at the top of our Long Bias list. The valuation reflects the momentum in the business and the visibility on the top line and in margin expansion. 2024 will have less gross margin expansion than 2023, with less carryover pricing, continued manufacturing inflation, additional manufacturing depreciation, and no acquisition tailwind. We seek an opportunity to raise the company to the Best Idea long list while being mindful of expectations.
K – Kellanova remains near the lower end of our Long list. Visibility on margin expansion remains high, but the industry headwinds on the top line have obscured the purpose of the spin-off.
UTZ – Moves a spot lower on the Long Bias list. The increase in promotions in the salty snack category seems to be less of a concern with the visibility in distribution growth. COGS inflation in the past couple of years derailed the EPS growth formula, but 2024 looks to get back on track – albeit at a slower pace in the 1H.
HSY – Remains on the Short Bias list ahead of Q1 results. The surge in cocoa prices has pressured the shares. Management already took down guidance for the 1H, leaving a hockey stick for the 2H. Concerns about the 2H projections being too high and cocoa inflation will mitigate a positive reaction to exceeding a low bar.
MDLZ – Remains on the Long Bias list ahead of Q1 results. The commodity inflation concerns are less pronounced for Mondelez than Hershey. With more business momentum, a substantially higher international sales mix, a lower chocolate mix, and larger price increases, Mondelez has more investor confidence. The valuation is attractive, but the company's visibility in earnings beyond the 2H is lower than normal. Mondelez would be a better investment with lowered projections.
HLN – Remains on the Short list ahead of a Q1 sales update. Haleon cycles difficult comparisons last year, boosted by a strong cold season, robust emerging market growth, an ERP implementation, and strong price increases.
KHC – Moves higher on the Short list ahead of Q1 results. We are modeling a margin-driven beat in Q1 with organic growth that is guided to be similar to Q4’s -0.7%. Will elasticity improve sequentially?
LBLCF – Remains on the Short list with decelerating growth trends and shares at an all-time high. The grocery chain sees disinflationary trends while the drug store chain lapping difficult front-end comparisons. At the same time, pharmacy sales accelerate. Margins are at a peak as the company has over earned during the inflationary period of the last few years.
MNST – Moves a spot lower on the Long list. Concerns about U.S. market share have risen above the margin expansion opportunity for investors. Like the beer acquisition, Bang Energy’s acquisition has added more questions and concerns than TAM. Capital allocation comes up more frequently in discussions.
BRCC – Black Rifle moves a spot lower on the Long list. Quad 3 is difficult for small caps. Keurig announced a partnership with K-cup pods last week. BRC is making deals with partners, but they will be announced with earnings.
Our updated position monitor:
We will discuss our position monitor changes on our weekly Consumables Show at noon on Monday.
CLICK HERE for the webcast.
