Nomad’s Q3 moves past the pandemic boost (NOMD)
Nomad Foods reported Q3 EPS of €0.30, $.02 above consensus expectations, and in line with our estimate. Revenue grew by 6.7%. Organic revenue growth was 5.4% in Q3, comprised of a 4.2% increase in volume/mix and a 1.2% increase in price, decelerating from 12.3% in Q2 that had a price of 2.4%. Management’s guidance for the 2H of the year was +MSD% as countries in Europe reopened over the summer. Management believes COVID-19 had a limited impact on Q3 results. Gross margins expanded 90bps driven by pricing, mix, and fixed cost leverage, improving from Q2's 50bps expansion. Operating expenses grew by 4%. EBITDA grew 13%, while EPS grew by 20%.
Management raised 2020 EPS guidance to exceed €1.31, up from exceeding €1.27, mostly due to the share repurchase during Q3. Organic revenue growth is expected to be +HSD% for the year. For the first three-quarters, organic revenue has grown by 8.4%. Management expects gross margin expansion to continue, but operating expenses will accelerate as a catch-up for what has not been spent earlier in the year.
The company will host a virtual investor day next week. We expect to hear more about a variety of topics. Still, We are particularly interested in the M&A environment in Europe, an update on the company’s plant-based meat brand Green Cuisine, and more about how the company invests in the brands for future growth. Nomad Foods is on our Best Idea Long list. The investment thesis for Nomad Foods is not that it is a pandemic beneficiary, but an undervalued food manufacturer with visible organic growth in a secularly growing category that also has an opportunity to supplement growth with acquisitions that have temporarily benefited from the pandemic. We are modeling revenue, EBITDA, and EPS to grow in 2021, while many food companies will have difficulty lapping 2020’s COVID-19 boost.
Conventional grocery reports similar results (AD-NL)
Ahold Delhaize reported EPS of €.50, up 16% YOY in constant exchange rates, and €.02 above expectations. Net sales growth was 10.1%. U.S. SSS increased 12.4% while European SSS increased 7.5%, with the former benefiting from the higher mix of food away from home consumption before the pandemic. Online sales increased 63%, with the U.S. up 115% and Europe up 49%. Click & Collect is now in 883 U.S. stores, up from 700 at the start of the year. The company’s Food Lion banner was the fastest-growing banner, followed by Giant and Stop & Shop. Operating margins expanded 20bps with pressure in the U.S. from a pension plan withdrawal, while in Europe, 50bps of pressure came from Netherlands pension expense and lapping one-time benefits. Management raised 2020 EPS guidance to the high 20% range from low to mid 20% previously despite higher pension costs in the Netherlands and supply chain transformation costs in the U.S. Management expects comps in the U.S. to continue from Q3 at a very modest slowdown. Management said in the U.S. shelf availability is still not back to normal levels. The promotional level picked up from Q2, but it is still less than the prior year.
Earlier this week, Publix reported comp sales of 16.5% in the quarter ended Sept. 26, decelerating only a couple of points from 19.9% in Q2. Publix operates 1,253 stores in the Southeast. There is not a lot of differentiation between the conventional grocer's SSS, but margins have varied.
Hard seltzer innovation will be copied (SAM)
Mark Anthony announced plans yesterday to launch White Claw Hard Seltzer Iced Tea in March 2021. The four iced tea flavors all have 5% ABV and 100 calories, and one gram of sugar. Boston Beer has previously announced plans to launch a Truly Hard seltzer iced tea next year with the same calories, ABV, and sugar. Mark Anthony has previously announced plans to launch a Mike’s Hard Seltzer Lemonade line in March 2021 to compete with Truly’s Lemonade, which was the brand’s largest innovation in 2020 and best seller. According to IRI, truly’s Lemonade seltzer is a top 30 selling product with $200M in sales through early October. White Claw is the hard seltzer market share leader with sales growth of 135% YTD compared to Truly up 158%. The hard seltzer category is up 193% for the 52 week period ended Oct. 3. Mark Anthony sales are up 91% through the first three quarters compared to 86% growth in 2019. Mark Anthony is planning on a strong year in 2021 with an expansion at its co-packing facility and new production facilities in New Jersey and Arizona.
