BellRing Brands (BRBR) – Looking Fit
In Conversations on Monday morning, I mentioned shares of BellRing Brands (BRBR) because within the consumer staples space, it was one of the only names that has held up over the last several months. Take a look at the chart at the end of this report and then compare to the likes of Campbell Soup (CPB), General Mills (GIS), Hershey (HSY), Lancaster Colony (LANC), and J.M. Smucker (SJM). Simply put, BellRing has not budged.
For those not aware, BellRing Brands is a consumer staple that sells nutrition products under two main brands: Premier Protein and Dymatize.
Premier Protein’s product portfolio consists of RTD protein shakes, refreshing protein beverages and protein powders. Premier Protein’s flagship RTD protein shakes are available in 14 flavors (including 3 seasonal flavors).
The Dymatize brand portfolio includes an assortment of sports nutrition products, including protein powders. The protein powder portfolio consists of three primary products: ISO.100 made with hydrolyzed 100% Whey Protein Isolate, Elite 100% Whey, and Super Mass Gainer.
According to the company’s 10-K filing, Premier Protein made up 81% of total sales while Dymatize made up 15.4%. RTD protein shakes and other RTD beverages were 79% of net sales, powders were 17.7%, and nutrition bars were 2.6% of net sales. These products are distributed across a diverse network of channels including club, food, drug and mass, eCommerce, specialty, and convenience. However, their largest customers, Costco Wholesale (COST) and Wal-Mart (WMT) (which includes Sam’s Club), accounted for approximately 63.5% of net sales.
Last Earnings, the company beat on both EPS ($0.34 vs $0.32 estimate) and Revenue ($445.9M vs $440.49M estimate) and raised its FY23 Revenue Guidance to $1.63B – $1.67B from $1.61B – $1.66B. Total Revenue had increased 20%, supported by an 11% contribution from price/mix and 9% volume growth.
Looking at its brands, Premier Protein Net Sales were up 20%, Volume was up 10%, and Consumption Dollars increased 27%. Meanwhile, Dymatize Net Sales were up 32%, Volume was up 46%, and Consumption Dollars increased 39%.
CEO Darcy Davenport, in her prepared remarks, would add that last quarter, Premier Protein became the #1 brand in the RTD segment and the #1 brand in the broader convenient nutrition category. The brand stayed in the top spot throughout the quarter. “All of this is especially encouraging because we still haven’t restarted meaningful marketing and promotion. Premier Protein made great progress in household penetration this quarter with the brand adding nearly 1 percentage point versus Q2 reaching 15% of households. Our household penetration continues to be the highest in the category, and we expect our Q4 marketing and promotional activities to further grow household penetration. Our repeat and buy rates are holding steady, demonstrating our consumer loyalty.”
They would also say that in Q4, they expect Premier Protein net sales to grow double digits with volume a larger contributor to the net sales growth rate than pricing as they restart light promotions and ship fall resets. Similar to Q3, the reintroduction of temporary discontinued flavors and higher RTP production will also drive year-over-year volume growth.
In a post-earnings note, Stifel would fist highlight that the company added a dedicated co-manufacturing facility in the quarter, and expects to add another in early FY24, which will bring the number of dedicated facilities (just to Premier) to three. Second, regarding costs, analyst Matthew Smith would say that poor timing of inventory purchases and sizable levels of inventory purchased, particularly for protein, have caused the costs realized by the company to deviate from prices reflected in the spot market for nonfat dry milk and dry whey. “Due to the 6-9 month duration of the purchase contracts/inventory, inflationary costs for the company peaked in 3Q23, when prices in the spot market were down significantly against the prior year. We expect lower input costs to be an EBITDA tailwind for the next several quarters.”
Finally, a wildcard catalyst to consider surrounds the popular GLP-1 drugs. I’ll point out that a recent Morgan Stanley AlphaWise survey of 300+ AOM (Anti-Obesity Medication) users highlighted that patients on these drugs consume more weight management foods like protein bars and shakes.
