The future is bright (STKL)
SunOpta reported Q1 EPS of $.01, in line with consensus expectations. Overall revenues were flat YOY. Plant-based revenue grew 12%, accelerating from 6.6% in Q4 with the plant expansions. Fruit-based revenue decreased 13% with a focus on margins while the strawberry crop was reduced.
Insulated from inflation
Gross margins expanded 130bps with Fruit-based expanding 170bps and Plant-based contracting 40bps. Additional depreciation from the new factories weighed on Plant-based margins while customer rationalization in Fruit-based drove the expansion. SG&A grew 4.7% or $0.9M due to higher stock compensation and headcount. Inflationary pressures are a key concern in the market currently. SunOpta bears higher trucking costs in some cases. SunOpta is not immune to inflationary pressures, but cost-plus contract arrangements in Plant-based insulate it.
Dream & WestSoy acquisition
SunOpta acquired the Dream and WestSoy brands for $33M. SunOpta supplied all WestSoy and half of Dream previously. $15-20M of the brands’ $40M in revenue will be incremental when it is insourced by year-end. Management sees the acquisition adding $6-8M of incremental EBITDA. WestSoy represents nearly all of SunOpta’s soy milk production in the retail channel. The risk of customer attrition from the acquisition is mitigated by the absence of other rice and soy milk retail customers.
Outlook largely unchanged
Management is guiding to 20% revenue growth in plant-based for the rest of the year. The $100M in capacity addition is still expected to be fully utilized by the end of 2022. Due to lead times for plant construction and ordering equipment, SunOpta will have to decide on additional capacity additions this year. Fruit-based revenues are expected to decline in the single digits for the balance of the year. EBITDA is expected to grow 50% in Q2 and “solid double digits” for the year's balance. Our estimates are ahead of the company’s guidance which has built-in conservatism. Leverage was 2.2x at the end of Q1, down from 10x a little over a year ago.
Oatly benefiting directly or indirectly
SunOpta supplies the leading oat milk brands except for Oatly. Based on SunOpta’s share price performance since Oatly filed its prospectus, the market could be concerned that Oatly will take share from SunOpta’s customers. Supplying Oatly could flip that narrative to SunOpta being a key supplier and beneficiary of Oatly, leading to multiple expansions. Oatly will grow the oat milk pie like other consumer lifestyle brands have similarly grown the market for their products. There are numerous more brands selling yoga wear and athletic apparel than before Lululemon began its expansion. There are also more independent coffee shops since Starbucks began its global store rollout. Oatly will help grow the oat milk category, but it is unlikely to take a dominant share with its position as a premium product. In the latest 13 weeks, scanner data Oatly lost a share and market leadership point to Planet Oat (a SunOpta customer).
