“I really don’t have a good feel for how many restaurants are going to come back. I’ve been saying for a few years there are too many seats out there, and there needs to be less.” Performance Food Group CEO.
PFGC won’t say how bad it is
Performance Food Group reported FQ3 EPS of $.58 vs. consensus estimates of $.22 after being revised down from $.73 before the COVID-19 impact. Recent acquisitions boosted results. Underlying organic case volume growth declined 7.2% down from +0.7% in FQ2. Gross margins contracted 140bps, with the largest cause being the mix of the Eby-Brown acquisition, not the pandemic. Bonus expense decreased by $46M in the quarter. Sales declined 50% in the last week of March, and management said each week had seen sequential improvement. Since FQ3 only had one month of impact from the stay at home restrictions, FQ4 will be weaker despite the weekly sequential improvement. Unlike the majority of the restaurant companies, PFGC declined to provide an April update for sales or cash flow. Shake Shack, a chain customer of PFGC, also reported yesterday and provided its weekly sales improvement in the chart below. Shake Shack’s sales have improved 28% points from the last week of March, but are still down an eye-popping 45% YOY. PFGC’s restaurant customers are also likely outperforming customers in its food service, hotel and tourism, and educational sectors. A large scale closing of PFGC’s customers would lead to lower earnings power potential in the future.
NOMD Q1 better than contemplated a quarter ago
Nomad Foods is positioned to benefit from several changes to household eating habits. A Kantar survey of Spanish households shows that nearly 40% of households say they are eating more healthily. 20% of households say they are using more frozen foods, as seen in the following chart.
Nomad Foods is scheduled to report Q1 EPS on Thursday. The consensus EPS estimate is $.32 vs. $.45 in the prior year. Sales are expected to be up 0.4%. When management provided guidance last quarter for revenue to grow LSD% organically this year, it was before the COVID-19 impact began in Western Europe. Management said EBITDA was expected to decline DD% in Q1, stabilize in Q2 and grow in the 2H. The hockey stick guidance was due to flat organic sales in Q1 from shipment timing in the UK and Sweden, gross margin phasing, and the advertising launch of Green Cuisine across continental Europe. COVID-19 has changed many things, including delaying new product launches. Sales were expected to improve month over month in Q1, but the improvement in March was amplified by consumers stocking up on groceries during the stay at home restrictions. Frozen food is limited by the available space in consumers’ freezers, which should reduce the stockpiling impact in March while trending toward what the elevated consumption run rate is for the category. NOMD is the best idea long, and we expect it to exceed estimates this year and the trend to be less of a hockey stick.
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Our weekly consumer survey points to a decline in the number of consumers spending more on groceries – trending towards a new normal. 42% of consumers still say they are spending more on food at home than before, as seen in the chart below.
Local grocery stores have also seen a deceleration recently in sales, but to a still robust 27.5% YOY level as reported by Womply (CRM provider) in the following chart.
