Top line hit consensus and core EPS beat by $0.07, with the CEO citing weather and a weakened consumer as responsible for the softness in Q1 volume results. Convenient store trends still look good, and lower gas prices behind an increased marketing spend could be beneficial in the coming quarters.
What we liked:
- Core EPS ahead of consensus ($0.53 vs. $0.46), up 15% for the quarter
- Revenue in line with consensus at $1.38B, up 1% (price/mix +3%; volume -2%)
- Reaffirms FY EPS $3.04-3.12; and 3% FY net sales
- Reported GM 57.2% vs 57.1% last year
- Hawaiian Punch comps will be easier in 2nd/3rd quarters
- Incremental brand investment behind the launch of the TEN platform, expected to exceed $30 million
- Increased marketing spend scheduled for 2H
What we didn’t like:
- Commodity costs increased this quarter, in apple prices in particular
- Packaging and ingredient costs are expected to increase COGS by 2% in 2013, on a constant volume/mix basis
- Non-carbonated volumes mostly hit hard, -4% (Snapple -2%, Hawaiian Punch -14%, Mott’s +11%).
- Continued softness in restaurant (QSR) trends
- Weakness in TEN launch, a strategic Carbonated Soft Drink (CSD) with less calories playing to the wellness trend
Call with questions,
Rob
Robert Campagnino
Managing Director
HEDGEYE RISK MANAGEMENT, LLC
Matt Hedrick
Senior Analyst
