巴克莱-美股食品行业：芝加哥2021——革旧鼎新-2021.5.17正文版.doc

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1、Restricted - InternalU.S. FoodChicago 2021 In with the New, Out with the (Thresh)oldLast week we co-hosted meetings with 11 Packaged Food companies on our annual (this time virtual) Chicago Food Field Trip including SJM, GIS, LW, CAG, KHC, HAIN, HSY, K, UTZ, THS, and MDLZ. In our view, the themes we

2、re more closely aligned across companies than weve seen in the many years weve run this event. Specifically, the pricing window is open to an extent not seen in many years with even potential to shift ancient pricing thresholds on certain brands, and conviction levels remain very high regarding the

3、potential stickiness of at least a portion of the shift to at home eating. That said, margins for the next few quarters could be “bumpy” before pricing actions catch up to inflation.In sum, while each company we “met” with was incrementally more positive to be sure, MDLZ stood out to us most, given

4、we see it as a likely candidate to raise its long-term top-line growth algo (potentially even by year end) and FY21 guidance appears increasingly conservative. LW was similarly positive, as the company remains confident in a return to pre-pandemic demand AND segment sales mix by calendar year end th

5、us no structural margin erosion upon the rebound. Wed also highlight HSY, KHC, and GIS as more constructive. Individual company details enclosed.The Pricing Window Is Wide Open, as Is Customer Receptivity Virtually every company we “met” with detailed how significant, broad-based inflation across in

6、puts, packaging, and logistics has led to necessary list pricing moves (as opposed to more surreptitious revenue management moves, such as weight outs, in the past) by most in the industry. The broad-based nature of this inflation has created a “strength in numbers” dynamic, leading to a high convic

7、tion in successfully passing on pricing to customers. As one food company put it, this pricing window could even enable food companies to liberate brands from ancient pricing thresholds that have not budged in many years with CAG mentioning that it does not look at inflation in a specific category v

8、s. YAG but looks at it vs. the last time the company took price which in some cases, could be years ago.But, the Lag Can Be a Drag While list price hikes seem assured in this environment, many companies used the terms “lumpy” or “bumpy” regarding margins for the next several quarters, as it can take

9、 time for pricing actions to hit the P&L and better catch up to inflation which would seem to indicate the likelihood for more back-end loaded earnings years for a number of off-calendar reporters that are nearing the time to provide initial FY22 guidance (SJM, CAG, and GIS).“Hard to Find Thread of

10、Logic There Wont Be Stickiness”: While these words were spoken by CAG CEO Sean Connolly, others voiced the very same sentiment in light of likely enduring work from home trends, greater facility with cooking from scratch, and the depth of repeat purchases, especially among younger consumers. Plus, c

11、ompanies operating in countries that have largely recovered, such as China and Australia, continue to see elevated at home eating trends even as away from home eating has rebounded suggesting a potential template for the US.Barclays Capital Inc. and/or one of its affiliates does and seeks to do busi

12、ness with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.COREEquity Res

13、earch17 May 2021INDUSTRY UPDATEU.S. FoodNEUTRALUnchangedU.S. FoodAndrew Lazar+1 212 526 4668andrew.lazarBCI, USJoshua Bader, CPA, CFA+1 212 526 3084joshua.baderBCI, USMax Gumport+1 212 526 4008max.gumportBCI, USPLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 25.Barcla

14、ys | U.S. FoodCompany summaries are below followed by more in depth set of company discussion:MDLZ In our view, arguably the most positive of all of our meetings. We believe MDLZ is nearing a point where it could be ready to raise its long term organic growth algorithm from +3%+ YOY to +4%+ YOY, pos

15、sibly even by year end. Faster growth acquisitions will come into the base and MDLZ has gone from share loser to consistent gainer in categories with global growth of +3% YOY. It seems that internally MDLZ does not even think about +3%+ YOY anymore and is disappointed if it is not growing closer to

16、+4% YOY.KHC KHC, to us, was very confident in its ability to manage inflation in 2021. The company still faces inflation at the low end of a +MSD YOY range lower than the industry average. But, most interesting (and surprising) to us was KHCs belief that it also is well positioned to even handle inf

17、lation at the likely higher exit rate of 2021 (vs the hedged positions that lead to the lower average level for this year) one of the first calendar year companies to discuss inflation this far out.LW While known transitory operating costs are still expected to impact F4Q21 and into F1Q22, LW reiter

18、ated its expectation to reach pre-pandemic demand and segment sales mix by calendar year end suggesting no structural headwind to margins once demand returns. Separately, LW sees its “Win As One” supply chain program as margin enhancing, over time, vs its historical 26-27% level, and looks to take p

19、rice to cover inflation plus expand margins.GIS While FY22 could well be a bit back-end loaded, as price catches up to inflation, in-market performance remains stronger than most for GIS as we see it. North American Retail sales are up +13% on two-year basis and the company has a strong line of sigh

20、t to shelf sets through its F1H22 which it expects to lead to continued gains in share of distribution points.CAG CAG continues to have a line of sight to its FY22 EPS target, but with top line outperforming its three year plan, it seems increasingly likely to us that its FY22 EPS target is ultimate

21、ly achieved via stronger sales though weaker margins given the shorter term margin headwinds as actions to deal with inflation take time to catch up. Two thirds of sales (frozen and snacks) remain elevated on a two-year basis and CAG sees 60% of its remaining “Staples” portfolio as meal enhancers th

22、at could come out of the pandemic not as structurally impaired from a growth perspective.SJM Like many others, SJM is still seeing elevated consumption trends and is confident in its pricing actions and productivity plan to deal with inflation. But, the lumpiness that typically comes with pricing la

23、gging inflation could lead to a somewhat back end loaded FY22 and perhaps put more pressure on its soft FY22 EPS guide of at least $8.76. SJM believes it has stabilized its Nutrish premium dog food brand though still looks to F2H22 to get the business back to growth.HSY HSY sounded quite positive in

24、 our meetings, as the company has picked up the equivalent of 1,000 football fields in length of incremental shelf space and conversations with retailers regarding Halloween and Holiday lead HSY to expect a very strong 2H21 seasonal performance. Visibility is high and HSY still anticipates some gros

25、s margin expansion for full year 2021 despite industry-wide cost pressures. The more accommodating competitive arena still looks to be firmly in place.K With its recent guidance raise following 1Q21 results, K, like many others, expressed confidence in its ability to manage through inflation. In fac

26、t, relative to several years ago, the company believes it is now in a much better place to deal with inflation, given its exit from its subscale DSD system, strong brand momentum, and change in strategic focus in emerging markets towards the base of the affordability pyramid.17 May 20212Barclays | U

27、.S. FoodHAIN Despite +500bps of margin expansion the last two years, HAIN still sees at least +100bps YOY in FY22 despite greater inflation. With $1bn of divested sales the last two years, focus is now shifting to adding scale in key categories (in part to make further non-core divestitures with les

28、s of a stranded overhead challenge). Get Bigger brands and key International brands are up +DD vs FY19 levels after adjustments suggesting building confidence in its +3-6% YOY top line growth target by F2H22, though its SKU rationalization program will still present some comp challenges when going b

29、ack to FY19. HAIN expects to lay out its next three-year plan by September.UTZ With our meeting with UTZ management taking place the day after its 1Q21 earnings results disappointed some investors, we came out of the meeting with increased confidence that UTZs long-term trajectory remains intact. Th

30、at is, management went into more detail on the parts of its business which drove the underperformance in its Core markets last quarter, provided strategic insights into its robust M&A activity, as well as more context behind its confidence in its ability to manage through inflation.THS With 80% of T

31、HS 2021 earnings now expected to fall in 2H21, we found helpful the companys more detailed commentary on the drivers of its incrementally more positive view on 2H21 relative to three months ago. Specifically, management believes it is in a much better position to take price vs 2018, as its service l

32、evels are now at 98% vs closer to 90% previously, Riviana synergies look more robust, and COVID-19-related costs are proving lower than planned.NOTE CONTINUED ONTO NEXT PAGE17 May 20213Barclays | U.S. FoodMondelez International (MDLZ)On Friday (05/14/21), we had the opportunity to meet with MDLZ man

33、agement, including Dirk Van de Put (CEO), Luca Zaramella (CFO), Shep Dunlap (Vice President, Investor Relations), and Andre Gevargiz (Director, Investor Relations). Below we highlight some of our key takeaways.We believe MDLZ could be getting closer to a point where it officially raises its organic

34、growth algorithm from +3%+ YOY, currently, to +4%+ YOY. In fact, over the past three years since CEO Van de Put took over, MDLZ has delivered organic growth of +3.8% YOY and we believe it reached a point where, internally, the company is disappointed if doesnt get close to a +4% YOY level (and reall

35、y doesnt even talk about the +3%+ YOY level anymore). At the time it initially laid out its growth algorithm in September three years ago, MDLZ was losing share in categories that grow +3% YOY globally. Now, MDLZ is expanding its share, and it stands to reason that the company should be able to deli

36、ver above the category growth rate. Additionally, when MDLZ created its plan, it didnt include accretion from acquisitions in the algorithm because deals are hard to predict. Since then, MDLZ has acquired a number of assets, which, given their collective size (around $1bn in sales) and enhanced grow

37、th rates (+HSD YOY), should be material enough to elevate the companys organic growth profile once these assets enter the base. And, we expect further growth enhancing acquisitions moving forward. Importantly, we do not believe MDLZ would take the move to raise its long term organic growth rate ligh

38、tly. In fact, we think the company would need to see an 80% chance of sustainably delivering this level of growth before making the move, as opposed to a 50/50 chance of success. We would not be surprised to hear of such a guidance change by year end.We also look for FY21 guidance to migrate higher,

39、 potentially with 2Q21 earnings results. Despite the 1Q21 upside, MDLZ reaffirmed its full year organic sales and EPS growth guidance, primarily to reflect the possibility of disruption in a still dynamic environment, particularly this early in the fiscal year. That said, the commentary over the cou

40、rse of last weeks meeting served to reaffirm our increasing confidence that guidance (and thus estimates) is likely to move higher at some stage, perhaps even as early as the 2Q21 call. That is, we believe the fact that the company posted a significant top and bottom line beat in 1Q21 despite lappin

41、g its toughest comparison of the year, faces its easiest comp in 2Q21, expects further market share gains, continues to see robust emerging markets growth, the very profitable gum business is slowly recovering, and is covered on inputs for the year and is confident inflation is manageable with prici

42、ng and productivity, in our view, provide better visibility to a likely above algorithm year even with incremental investment spend already having been unlocked in 1Q21 and even more planned in the remainder of the year than originally anticipated.Unlike most Packaged Food peers, in the face of incr

43、easing cost pressures for the industry, MDLZ was able to hold gross margins flat YOY (and ahead of Consensus expectations). This was despite gum and candy and World Travel Retail, two high margin businesses, continuing to remain pressured. Importantly, we do not expect to see material pressure on gr

44、oss margin in the remainder of the year as inflation, although higher than originally expected, is largely hedged for the year and we believe MDLZ will be able to leverage its productivity and revenue growth management capabilities as needed. In fact, despite the potentially more unfavorable operati

45、ng environment, MDLZ has increased its level of investment relative to its original annual plan, demonstrating, to us, a level of confidence in sustaining profit dollars.While MDLZ manages more to profit dollars rather than margin percentage, in our view, what MDLZ was able to deliver in 1Q21 reaffi

46、rms the potential of its volume and reinvestment strategy. Most notable, in our view, was the performance of the AMEA17 May 20214Barclays | U.S. Foodsegment, which grew profit +45% YOY and expanded margins +400bps YOY, showing the power of MDLZ when it can create volume, price effectively, and drive

47、 volume leverage in key emerging markets like China and India. We believe MDLZs growth in emerging markets where it has good scale and profitability is a key differentiator.When CEO Dirk Van de Put first took over as the leader of MDLZ, in our view, some investors questioned the strategic advantage

48、of the companys DSD delivery system given its high fixed cost structure, particularly as some closer-in supply chain challenges limited MDLZs ability to fully capitalize on Ks recent exit of its own DSD system at the time. As we discussed in our note Mondelez International: Direct Store Deliver(ing) (01/16/20) just prior to the start of the pandemic, MDLZ was