Did CPB’s share drop yesterday indicate concern over decelerating growth?
Campbell reported FQ3 EPS of $.83 vs. consensus of $.75. Organic growth was 17%, accelerating from 1% sequentially. The snacks segment had organic growth of 12%, while meals & beverages grew 21%. US retail soup grew by 35%. Foodservice is only 5% of sales. Management believes the recent slowdown in depletion is a result of lower inventory levels on retailers’ shelves than a change in demand based on steady order demand and out of stocks. Adjusted EBIT grew 31% as improved gross margins were slightly offset by increased marketing spend. Leverage was reduced to 3.2x EBITDA.
Management raised EPS guidance from $2.55-2.60 to $2.87-2.92, with organic sales growth of 5.5-6.5% compared to flattish expectations previously. The raised guidance is noteworthy given the number of companies no longer providing guidance and management’s history of giving cautious targets, which certainly appears to be the case for F2020. Shares fell 6% yesterday following the results, giving back the gains of the previous four days. Campbell’s shares are flattish compared with where it was trading before the COVID-19 outbreak, and the 17x P/E multiple is undemanding, but probably appropriate. If nothing else, the reaction yesterday is a reminder to only pay up for organic growth post-COVID-19.
Alcohol sales decelerate for the second week (STZ)
Total alcohol off-premise sales increased 24.8% for the week ended May 23, according to Nielsen. The beer, FMB, and cider category grew 20.9% in the off-premise channel, decelerating from 25.5% the previous week, as seen in the following chart. Spirits sales increased 32.6%, decelerating from the 38.8% growth rate the last week. Wine sales grew 27.1%, decelerating from 30.8% the previous week. Off-premise beer sales had the strongest week of 2020, second only to the 4th of July weekend over the past year.
Hard seltzer sales grew 272%, surpassing a 10% share of the beer, FMB, cider category for the first time. Premium light beers grew 8.2%, below premium grew 4.0%, craft beer grew 14.8%, Mexican imports grew 19.8%, cider grew 9.4%, hard tea grew 32.1%, and non-alcoholic beer grew 37.4%. Larger pack sizes continued to outpace other packages with 12 packs growing 40.9%, 36 packs growing 40.3%, 30 packs growing 26.1%, and 24 packs growing 21.8% while 6 packs and single servings are down.
As Constellation Brands explained last week, the scanner data captures the sales data of what are the strongest retail channels currently and omits independents and state-controlled package goods stores that are more often closed or performing weaker than the large chains. That makes the scanner data less accurate of a representation of the off-premise channel as it was in pre-COVID 19 times and, of course, does not include the on-premise channel.
Criminal charges of price-fixing are charged (PPC)
Jayson Penn, the CEO of Pilgrim’s Pride, and three other executives were indicted yesterday for allegedly conspiring to fix prices on chickens. The Justice Department charged current and former executives at Pilgrim’s Pride and Claxton Poultry Farms for fixing prices and rigging bids from 2012 to 2017. One of the Claxton executives charged previously worked at Pilgrim’s Pride. In 2016 restaurant companies and poultry buyers sued the major poultry producers accusing them of illegally coordinating to inflate prices. Grocers, including Kroger and Walmart and restaurant suppliers, including Sysco and US Foods, have filed similar lawsuits. Last year the Justice Department sought evidence from the plaintiffs in their private lawsuits and issued subpoenas to the poultry producers. The individual lawsuits were frozen while the DOJ investigation moved forward. The indictment said the executives communicated about negotiations with fast food companies and grocers and submitted similar bids. The producers are alleged to have exchanged detailed information on prices and sales volumes through data compiler Agri Stats and to have manipulated the Georgia Dock price index, a benchmark published by the Georgia Department of Agriculture. The DOJ said the criminal investigation is continuing, and the four individuals are the first to be charged. The private lawsuits appear to be resuming shortly with the plaintiffs pushing for virtual depositions last week. Also, a month ago, President Trump asked the DOJ to look into the allegations that the meatpacking industry broke antitrust laws.
With feed prices at a low and the relative cost of poultry to beef and pork, the fundamentals would appear to be very favorable for poultry producers. However, due to the closure of restaurants and foodservice dining rooms, there is an imbalance between supply and demand in the near term. Now the legal risks, which were a cloud previously, have darkened.
